Having been shunned by banks during the global economic downturn, small-to-medium-sized enterprises (SMEs) are experiencing a popular revival. Schemes are springing up weekly to help boost lending, facilitate angel investment and develop sales and marketing strategies.
National Bank of Abu Dhabi (NBAD) last week signed an agreement with Dubai SME, an agency of Dubai Economic Development, to promote entrepreneurship and expand the bank's services to SMEs, and Emirates Islamic Bank is developing a team to lend solely to the start-up market.
In addition, the Khalifa Fund is working with a number of banks to facilitate lending and Standard Chartered will today launch its own initiative to boost the SME sector.
Given this increasing number of options, what factors should a small business owner consider when picking a banking partner? Apart from the obvious - the availability and cost of credit - here are some questions to consider, according to Mary Goodman and Rich Russakoff, the co-founders of Bottom Line Up Enterprises, a US-based SME coaching consultancy:
1. Is the bank healthy with strong financials?
Given today's economic climate and the recent rise in bank failures, entrepreneurs must check the health of any bank. One place to start is Global Finance's ranking of The World's 50 Safest Banks - NBAD has made the cut for the past two years.
2. Does the bank have a business division focused on lending to SMEs? What percentage of the bank's business is geared to this market?
Rather than searching on bank websites, which can often include a lot of hype, Bottom Line Up Enterprises recommends speaking to the right person in the appropriate division. "You'll get much more information if you call and ask detailed questions," the consultancy says.
3. Is the bank familiar and comfortable with the SME industry? What type of business does it lend to? In which industries does the bank specialize?
SMEs should specify they are looking for a long-term relationship with a bank. If the bank doesn't work with companies in the SME industry, entrepreneurs should ask for recommendations for other banks. Local banking markets are small and bankers are well aware of what type of loans their competitors are making.
4. What mix of services and products does the bank offer?
Businesses should be aware of what they need: traditional loans; lines of credit; credit cards; direct deposit; or auto/equipment leasing.
5. Does the loan amount fit within the bank's lending limits? Can the bank handle a company's increasing financing and banking needs?
Many banks have different divisions handling loans based upon the size of the loan and the size of the company. Smaller banks may have ceilings on how much they can loan to one business, while larger banks may have a minimum size loan.
6. Is it easy to secure a meeting with the right person who makes the lending decisions?
Bottom Line says it is "always a plus" if a senior manager takes an interest. While this may not guarantee a loan, entrepreneurs might receive preferential treatment.
7. Is the bank willing to meet at an SME's premises?
If a business "shows" well - that is, if its appearance indicates a thriving, well-organised operation - it is always better to meet the banker on site.
8. How long has the loan officer been with the bank? What is their expertise and level of experience in working with small and mid-sized businesses?
Many loan officers who appear authoritative have very little lending power, so it's important to sit down with someone actually in a position to make a decision if possible.
* with Reuters
rjones@thenational.ae
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Rooms at the Ritz-Carlton Almaty cost from Dh1,944 per night including taxes; and in Astana the new Ritz-Carlton Astana (www.marriott) costs from Dh1,325; alternatively, the new St Regis Astana costs from Dh1,458 per night including taxes.
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The Melbourne Mercer Global Pension Index
The Melbourne Mercer Global Pension Index
Mazen Abukhater, principal and actuary at global consultancy Mercer, Middle East, says the company’s Melbourne Mercer Global Pension Index - which benchmarks 34 pension schemes across the globe to assess their adequacy, sustainability and integrity - included Saudi Arabia for the first time this year to offer a glimpse into the region.
The index highlighted fundamental issues for all 34 countries, such as a rapid ageing population and a low growth / low interest environment putting pressure on expected returns. It also highlighted the increasing popularity around the world of defined contribution schemes.
“Average life expectancy has been increasing by about three years every 10 years. Someone born in 1947 is expected to live until 85 whereas someone born in 2007 is expected to live to 103,” Mr Abukhater told the Mena Pensions Conference.
“Are our systems equipped to handle these kind of life expectancies in the future? If so many people retire at 60, they are going to be in retirement for 43 years – so we need to adapt our retirement age to our changing life expectancy.”
Saudi Arabia came in the middle of Mercer’s ranking with a score of 58.9. The report said the country's index could be raised by improving the minimum level of support for the poorest aged individuals and increasing the labour force participation rate at older ages as life expectancies rise.
Mr Abukhater said the challenges of an ageing population, increased life expectancy and some individuals relying solely on their government for financial support in their retirement years will put the system under strain.
“To relieve that pressure, governments need to consider whether it is time to switch to a defined contribution scheme so that individuals can supplement their own future with the help of government support,” he said.
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