MGT601 SME MANAGEMENT

Guide Lines for Approaching Lenders – III Lesson 22 Guide Lines for Approaching Lenders – III

Chapter Learning Objectives The prerequisites for approaching a lender which every small and medium scale industry owner should know are discussed in this lecture.

Commercial Information Details of orders booked: You are requesting credit to enable you to fulfill a large or profitable new contract, it is advisable to have all the documents, correspondence, quotations from suppliers, draft contracts with buyers and suppliers, and your own costing, and calculations ready for discussion.

Continued….. This is all the more important if your order is for export. The credit facility you obtain from your bank will almost certainly need to tie in with the payment methods that you use with your suppliers or that are stipulated by your overseas buyers.

Continued…. You are strongly advised not to sign any firm contract with suppliers or customers before you have discussed credit and payment methods with your bank. Once the contract is singed it may be too late to alter the terms and this may seriously limit the scope of the facilities your banker may be able to offer you.

Business Plan A formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.

Business Plan A document which contains all the necessary information required to start, run, grow and shut down a venture profitably. Or Functionally business plan is a mega document which contains different but related documents covering all aspects of a new business venture.

An outline of a Business Plan for a Working Capital Facility 1. The business Presentation of the sponsors, shareholders; Background and history of the company, business; Performance to date Brief outline of the firm’s objectives, strategy, and policies.

Continued…. 2. Review of past turnover and future trading prospect • Analysis of past year’s turnover by country, customer highlighting credit terms offered, payment performance and bad debts; • Analysis of firm orders received, prospects for further orders, customer creditworthiness and payment risks.

Continued…. 3. The Market Survey of the market for the traded products, commodities: demand, supply, pricing, distribution, margins and profits, competition, trends. 4. Production or procurement Summary of production techniques or procurement procedures (if trading).

Continued… 5. Inputs Raw materials required; Sources, suppliers, costs. 6. Organization and Management Internal management structure Ordering, invoicing, back-office procedures.

7. Financial data, projected results, economic justification Planned capital and working capital expenditure; Requirements for short-term credit facility and payment methods to be used; Cash flow of operations, transactions; Projected profit-and-loss, and balance sheets; Economic benefits of the project net foreign currency earnings.

Feasibility Study Feasibility studies aim to objectively and rationally uncover the strengths and weaknesses of the existing business or proposed venture, opportunities and threats as presented by the environment, the resources required to carry through, and ultimately the prospects for success.

Feasibility Study…. Feasibility studies are usually carried out in connection with medium- or long-term projects and are consequently prepared, among other reasons, as an aid to raising medium- to long-term project loan finance.

Checklist for Feasibility Study 1. The Business: Presentation of the sponsors, shareholders; Background and history of the company, business; Performance to date; Brief outline of the firm’s objectives, strategy, and policies.

2. The export programme and equipment required: Detailed description of the proposed programme stating: buyer, goods, quantities, quality, shipment schedule, prices, shipping terms, packing conditions, inspection procedures, other formalities; Details of equipment required, sources and costs.

Checklist for Feasibility Study….. 3. The Market Summary of production techniques or procurement procedures (if trading). 4. Production or procurement Summary of the market for the traded products, commodities: demand, supply, pricing, distribution, margins and profits, competition, trends.

Checklist for Feasibility Study….. 5. Inputs Raw Material required; Sources, suppliers, cost. 6. Organization and management Internal management structure; Ordering, invoicing, back-office procedures.

Checklist for Feasibility Study….. 7. Eligibility for export incentives, promotional schemes Benefits the business is entitled to, export premiums, concessionary loans.

Financial data, projected results, economic justification Planned capital and working capital expenditure (equipment and raw materials); Finance required to purchase equipment; credit and payment methods; Cash flow of operations, transactions; Projected profit-and-loss and balance sheets; Economic benefits of the project, net foreign currency earnings.

Thanks you Happy Learning, Keep Learning