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Addressing Bank Loan Challenges for Agricultural Projects: Seeking Effective Solutions

Many agricultural businesses struggle to secure bank loans due to high interest rates and outdated operations. This article highlights common issues faced in obtaining financing, including lack of reliable production capabilities, insufficient planning, and competing business interests of owners. It proposes potential solutions like merging resources, creating robust business plans, and exploring alternative funding options such as leasing and micro-financing. Finally, the need for professional management and community collaboration is emphasized to enhance project viability for securing loans.

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Addressing Bank Loan Challenges for Agricultural Projects: Seeking Effective Solutions

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  1. Other Subjects SNV PUM

  2. Other subjects SNV PUM BankLoans and Funding A big leap

  3. Bank Loans and Funding • I have received many complaints about basically the fact that Banks are not interested to lent money to agricultural projects. • And if Banks would be interested, that interest rates are sky-high • I cannot comment on interest rates but want to ask the following question

  4. Bank Loans and Funding • Would you lent money to: • A company with outdated, not modern, equipment • That cannot really produce for export • Has a too low capacity • No equal quality raw materials nor equal quality end-products • No certificates • So: has to produce for a (stagnant) local market • No long term contracts with farmers nor with customers, no business-plan • Possibly a one time export order, but no guarantee for repeat orders • And above all: an owner that also has other, completely unrelated businesses and therefore cannot really devote his full attention to the project for which he wants to borrow money?

  5. Anybody answering with: yes?

  6. Bank Loan, Funding, Leasing • Funding may imply you are not fully owner • But it also implies support for the project from the funding co-owner • Bank Loan: high interest rates • Fund: part of the equity for the funder, but also lower investment by the initiators and therefore possibly easier to materialize. • Leasing: equipment can be used but not be owned until it is fully paid.

  7. Funding • During my study I stumbled across a possibly interesting fund from NAADS called CF • A call once a year • Requiring proper business-plans, which may not be easy to write and guarantee • But looks like an interesting opportunity • 50/50 equity • Your 50% also can be e.g. land, building, management and does not have to be cash • It makes sense to shop around and not just consider this opportunity

  8. Micro-leasing • Another option might become micro-leasing • Processor wants to buy a machine • The machine is paid by a financing company • And paid back by the entrepreneur from the revenues of product sales • System works in Kenya, for Uganda discussed by Swiss Contact

  9. The big leap forward • If small companies cannot get funds or loans, then what is a solution? • Join forces • Don’t build many drying plants in one area • Combine resources • Build one together • Make a good business-plan • Hire a professional manager or: • Let one of the owners pay full attention to the project • Find the proper support, financially, managerial and organizational, re. plant lay-out and routing, equipment, quality aspects etc. On any aspect required.

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