A credit manager asked the following question: SME entities generally do not have proper succession planning. Does it restrict access to long term finance?
Joel Ntefuni Nandan comments: Generally a good risk manager in taking a decision to approve a loan over a certain tenor will satisfy himself per his judgement that the borrowing organisation will at least operate as a going concern over the tenor of the loan. So for me, long term funding is meant for organisations which provide comfort in terms of continuous existence. Most SMEs are not able to demonstrate their potential to operate as a going concern over a long term. Other SMEs easily change their business lines judging from their history. These impair credit managers’ judgment of ability of SMEs to pay long term loans and make them less willing to approve long term funding to SMEs. I will say yes lack of succession planning directly impact tenor of SME lending product because from my experience, tenor for SME lending range from 1month to 24months- (short term).
William Fellows comments: I can’t say that in the Francophone emerging markets I have ever heard a credit decision being impacted by formal succession planning. I rather doubt that it has a direct effect, particularly as the shared cultural assumption of both the credit officer in the domestic market and the generally family held firm is family succession (e.g. eldest son). Unless there is an obvious reason to doubt the assumption, that seems to hold. If the SMEs are properly small firms seeking long-term financing from bank officers from their own cultural sphere, I don’t see a direct impact. At the same time the lack of such planning often seems to go hand-in-hand with a number of other old-style traditional management practices (such as confusion of family and business expenditures in business, etc) that clearly and more obviously impact long-term financing access. Again in the Francophone markets I hear rather more debate, complaints, anecdote about those issues than succession planning (in fact I can’t recall in either venture or plain bank financing ever hearing someone in these markets touching on that explicitly). Anglophone or more American management models impacted markets may be different. Source: BIIA following discussions on SME Financing on LinkedIn