NOV. 2012. Choosing the right option: Debt v/s Equity Debt or Equity what would be the best option?  Deciding between equity financing or taking on a.

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Presentation transcript:

NOV. 2012

Choosing the right option: Debt v/s Equity Debt or Equity what would be the best option?  Deciding between equity financing or taking on a loan is a challenge all SME owners face. Should you go to a bank and apply for a business loan? Or should you look for an investor?

Building a sustainable relationship with banks Key steps  Building a Business Case  Knowing your need  Understanding your business risk  Role of finance manager/auditor  Presenting your case  What can the bank do?  Advisory role  Simple and transparent process  Need based product delivery

Inventories: Raw Material / Finished Goods Receivables / Payables Asset Purchase / expansion Know your needs

Understanding Business Risks

Role of finance manager/auditor  Develop internal controls in the business.  Identify business challenges and potential opportunities for greater efficiency and results.  Identify potential financial risks eg. liquidity in the business.  Detailed analysis of financial data and its underlying reasons  Periodic Reporting to Banks.

How to present your case?  Assessing the suitability of bank capital as a source of funds for the business.  Matching business needs of capital with different products and services of the banks.  Preparing an thorough application for bank finance.  Share a detailed utilization plan of the facilities requested  Have a mechanism regularly update the bank of material changes to the business

Target Market Asset Size Criteria Sales / Turnover Criteria # of Employees & Target Segment Industry What do banks look for ?  Banks are in the business of lending and risk sharing  Banks seek information which is quantifiable, verifiable and sustainable  Different banks based on their preference and internal know-how define and operate in target markets of their choice  Lending is based on a variety of factors which the bank seeks to asses

Cause for concern 9 Absence of reliable information Inadequate accounting & financial statements Lack of proper feedback/references from market Historical performance unavailable High Risk Perception ReasonReason

Typical approval process in banks

Banks Disbursal Process