Startups must seek cheaper ways through which they can access credit instead of drawing high interest rate loans from banks, Mr Tony Elumelu, the chairman and founder of United Bank for Africa has said.
The cost of credit, especially from banks, he said, is destructive to startups because they find it hard to sustain their core operations as well as fund the repayment of loans.
Mr Elumelu was speaking during a thought leadership forum organised by UBA at Makerere University under the theme: “Africapitalism and Entrepreneurship”.
The remarks come at a time when the market is grappling with high interest rates that currently stand at an average of 21 per cent.
Banks are mainly the most accessible sources of credit yet startups find it hard to secure loans from such institutions.
Other sources, such as the stock exchange, have not attracted the attention of SMEs because of what some have referred to as strenuous procedures.
Last week during celebration to mark 20 years of the Uganda Securities Exchange, Mr Louis Kasekended, the deputy governor Bank of Uganda wondered why after 20 years very few companies had listed on the stock exchange. He said there was need for comprehensive research to understand why companies where not listing on the exchange, which is one of the main sources of mobilising capital.
However, Mr Elumelu argued that whereas startups need funds, it should not be an excuse for their failure to prop up the operations of their business.
“Entrepreneurs do not have to start big… All you need is the little money to start your concept. Capital is constraining but people should not just give up,” he said.
Mr Elumelu, through the Tony Elumelu Foundation, has seeded $100m (Shs367b) to support more than 10,000 entrepreneurs in African for a period of 10 years.
The programme, which started about four years ago, has supported more than 3,000 entrepreneurs through funding, mentoring and advocacy. The foundation has supported about 300 entrepreneurs in Uganda.