Over the years, the leasing industry in Nigeria has grown steadily and the number of companies involved in leasing transaction has increased. Good News! However, whether leasing is simply and only a profit-making venture or also, more importantly, a tool for economic development in is one question that needs to be answered.
Small and Medium Enterprises (SMEs) play a vital role in economic development, by increasing competition, fostering innovation, and generating employment. However, inadequate funding has been cited as one of the major challenges limiting the performance of most SMEs in developing countries. In Nigeria, SMEs are strongly restricted in accessing the capital that they require to grow and expand.
A critical look at the challenges that these SMEs and startups face with regards to accessing finance from the formal financial institutions would reveal that most of them (SMEs) are unable to provide the necessary collaterals to access loans from the banks and in the process good business ideas could not be implemented and consequently die off. Traditional financial institutions find it somewhat difficult to finance SMEs given the small size of these companies and/or their unproven track record. The alternative for SMEs could be an outright purchase with one’s resources (equity), debt financing (borrow and buy), hire purchase, conditional sale or instalmental sale.
Equipment leasing therefore comes in as a very good option for SMEs as an alternative mode of financing the acquisition of capital asset. Leasing financing for equipment and capital goods is an important alternative to traditional means of financing, especially for startups and smaller businesses that lack the credit history or the required collateral to access traditional forms of financing.
Leasing generally implies lower transaction costs compared to loans and, where available, it can also be an attractive financing option for rural and agricultural small-scale operators. And as in the case of a lease transaction, the lessee is provided with the required equipment for his business, not cash thereby curbing the risk of misusing a loan facility from the bank for another need. Invariably, this to a great extent ensures that the lessee indeed uses the equipment for the original intended purpose (business) and not something else.
As such, in addition to already established and successful business organizations and conglomerates, FleetPartners Leasing considers SMEs and small startups a major part of our target market in a bid to contribute our own quota to the development of the Nigerian economy according to our vision.
It is my honest opinion that leasing must be integrated into SMEs development in developing countries to catapult the economic development of these nations.