How can your SME stand out to financers

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The budget for the 2025/26 fiscal year shows that the Government plans to borrow more locally to finance its activities. The trend continues to crowd out private sector actors and increase the cost of financing for small and medium-sized enterprises (SMEs).

With many SMEs struggling to secure funding opportunities from financiers, we had a chat with Ivan Mandela, the CEO SHONA Capital, to discuss alternative funding opportunities, the common mistakes SMEs find themselves in and the overall ecosystem. SHONA Capital supports small businesses with capital.

Over the past two years, Mandela says they have provided over $2.5m (sh9b) in capital to 100 businesses, each employing around 10 people, with a turnover of about sh100m, writes Ali Twaha.

SMEs are recognised as the engines of growth and development. Yet for many, accessing growth capital remains challenging due to requirements, such as collateral. As you seek to build this ecosystem, how different is your approach from prevailing financing models?

Many business startups use personal savings and grow the ideas to a certain level. But beyond that, they will need more capital. That is what SHONA is designed to address. If you have a good business model with some traction and can generate at least sh40m of revenue in 12 months (sh3.7m per month), we are willing to listen to you. The second is, as long as your business idea makes sense, we are willing to give you money without collateral. What is important to us is that the business makes sense. That is what makes us different from a bank, because we are willing to have a conversation.

We rely on the character of the entrepreneur, their personal resources, commitment and time they have already put to bring the business to a revenue of sh40m.

What we have learnt is that it doesn’t matter whether a loan is secured or not. What is important to us is to make sure the business is viable to generate sufficient cash flows to pay the loan. For the last 10 years, we have focused a lot on capacity building within SMEs management and, business models to open them up for opportunities. We are more than a lender, because when we give you money, we give you support to address the critical bottlenecks that any business usually faces.

How can SMEs make themselves more attractive for either equity or debt financing in the market?

It is about formalisation. That is the biggest challenge because any investor, including ourselves. Even if we are saying we can give you money without collateral, there must be something we hold on to –and that is transparency around the operations, the legal structure and how well formalised you are. This is to protect our interests as a lender or as a venture capitalist or as a private equity investor. So, the more formal a business is, the more likely or the more attractive it is. Formalisation is not just about registering; it is really about how the business is run and governed.

The biggest issue is usually around financial management. As an investor, if I don’t have the data and the reports that tell me how well the business is doing, I have no basis to make a decision. I know most businesses shy away from proper financial management for two things; one is just lack of governance. They want to have full control and merge their personal finances with the business. The other issue is making sure you have your paperwork aligned. This is because that’s what investors are going to look on. Every investor has a checklist, and that checklist is about legal documents, financial records.

The third element is compliance. It is with the taxman and the regulator is a risk for any investor. It means if you are not compliant, any day or time, you could be closed out. I always tell entrepreneurs if they are not compliant, they are only deferring the problem.

The market has so many products for SMEs. Some are simply copy and paste from other markets. Part of the challenge has been the structure of the products and how they are presented. How do you arrive at a product you think fits well within this market?

SHONA Capital is built from a decade of experience working with small businesses and seeing where these gaps are. We have two core products; the spark loans and the revolving credit line we launched recently. The spark loans are designed for first time borrowers. People with limited experience. A business that has not even borrowed before with zero collateral.

We are able to give them up to sh75m without collateral to help them leverage any opportunity they have to grow their topline revenue immediately. That enables them to stock more inventories. Buy more raw materials such that customers are not bouncing when they come. The business growth loans are for businesses with a stronger foundation that have about sh100m of annual revenue.

Let’s say I have a production line and I need to improve my packaging material that’s where we come. For this we can lend up to sh300m. It’s really about size, the opportunity and the use of funds.

There are scenarios in this market where the time between application for a loan and actually disbursement can be frustrating for SMEs. How does the initial contact to disbursement look like?

The only reason money lenders will survive in this market is because of the turn around time. While a bank will take in circles for months, a money lender will tell you as long as you have collateral, we will give you money in a day. Some businesses are willing to pay premium for that and I don’t blame them because opportunities don’t wait. We have recognised that and our current turn around time is 10 days for the Spark Loans if you’re coming for the first time. For the revolving fund, you can have the money in a day because that is the nature of those opportunities.

The basic criteria are you have at least two employees, your formally registered as a business, been in business for at least two years and your 12 months revenue is at least sh40m. Other requirements are financials, bank statements because we invest only in formal businesses. Once we have that our appraisal process begins.

Debt and equity are some of the popular financing models. How can SMEs ensure they pick the right model of financing?

When you start a business in the early days, your primary source of funding is going to be equity in whatever form. And most businesses don’t think they have equity, but every business does. When you start, your personal savings as a founder, that is equity. You are essentially buying. That is what gives you the ownership. The alternative to that if you do not have your own savings is when you go to family and friends. But then as you start to gain traction then debt becomes inevitable for working capital which is where we are focusing.

After that you go to private equity. So, there is venture capital in the early days and then private equity comes in later when you’ve grown but now you want to scale massively. I think that capital is increasingly becoming more available and it’s a blend.

In terms of you risk profile, are their specific sector you prioritise or avoid in the market?

We are generally open. But the main sector we have seen are agriculture, agribusiness and healthcare. We accept anything. Right now, we are not investing in alcohol and anything else that destroys the environment.

What is the typical loan size, duration, and interest rate for an SME?

Our loans go from 6 to 24 months because is mostly working capital. We try to align the loan with the working capital cycle of the business. We typically cannot fund below sh20m and go up to about sh200m. We can also stretch beyond that depending on the opportunity. The interest run between 20% to 24% on reducing balance basis per annum.

From your experience, what are some of the common mistakes SMEs make in their pursuit for financing from investors?

When you talk to any business, the biggest issue they will tell you is capital. In most cases it is but also capital is not enough. The best thing to do is to appraise your business. Besides capital, what are the other issues? Have clarity of what you actually need the money for and how much is it? That doesn’t include your personal needs.

You should also know what the next step when you get that capital. Sometimes, businesses raise too much money and too fast. When you have too much money, you then start to get new ideas that don’t make sense. That is why financial management is important because you will know the right amount of money you need. That is why some people complain debt is bad. It is good if it is properly structured, priced and used for the right things in the business. Problems come when you divert it for things you have not planned for.