Loans Application Processes for Small and Medium Enterprises

Small and Medium Enterprises often hard-pressed for working capital.

One of the options often undertaken is to seek some sort of financing from authorised money lending companies such as retail banks or commerce banks. Others seek Venture Capitalist companies.

Here is an information released by the Consumer Education Programme by Bank Negara Malaysia and The Association of Banks in Malaysia (Persatuan Bank Dalam Malaysia).

Irrespective of where the money comes from, normally there are 3 stages that one may encounter:

Stage 1: Preparation of Business Plan
Stage 2: Application Process itself
Stage 3: Assessment of the Loan

We shall focus on

Stage 1: Preparation of Business Plan.

What is a Business Plan?

It is a written plan outlining your vision and how the business is to be managed to achieve its objectives.

A well-written and structured business plan should cover and provide information on the business that the financial institution wants to know.

The business plan should be clear, simple and concise.

What are the Key Areas of the Business Plan?

The key areas of a business plan are:

• Business model, product/services, vision and goals

• Current position of company, in relation to financial, market and competitor (if available)

• Critical success factors for the business

• Financing requirements

• Specific purpose(s) of the loan and in what way the loan can help the business

A good business plan should incorporate the following basic information:

• Introduction to the business

• Organization chart and structure of the organization

• Business objectives and vision

• Description of product and services

• Industry and competitor analysis

• Business strategies

• Operational requirements

• Sales and marketing strategies

• Financial forecast

A Sample Business Plan may include but not limited to:

Introduction

Business Description

A brief description of your business; product type, industry and target market and competitive position as compared to your rivals

Current Position of Company

Date of incorporation and at what stage the company is at now

• For new businesses:

– How advanced is the business; has key staff been hired, production commenced, sales made etc.?

• For existing business:

– State the sales and profits of the company for the last three years


Financing Request

• State the type, amount, purpose, expected loan release date and expected loan repayment period
  
• New businesses should identify the sources of start-up capital of the company i.e. from shares/paid-up capital, advances from directors, family, third parties, external
  borrowings etc.

Working Capital Financing

Types and limits
Overdraft, trade facilities (trust receipt, banker’s acceptance)

Purpose
To finance shortfall/gap in working capital (WC) requirement

Computation of RM Value of WC Requirement

Example:
Days
Debtors credit terms 90

Stock turnover 60
150

Less
Creditors credit terms (60)
Asset Conversion Cycle 90

Example:

If the forecasted sales turnover is RM5 million, then the Working Capital Requirement will be 90/365 x RM5.0 million

= RM1.23 million

Capital Expenditure Financing

Types and limits
Term loan, leasing, hire purchase, margin of financing required, source
of borrower's own contribution

Purpose

• To finance fixed assets acquisitions e.g. purchase of properties, machinery
• To finance cost of construction for factory/shophouse

Details

Type, brand/make and cost of fixed assets to be acquired and its economic life span

Construction cost supported by relevant supporting documents

Repayment terms

• Method
• Amount (based on cashflow projections/income)
• Period/tenure
• Expected date for the first repayment to commence

Business Objectives and Vision

You should highlight your vision of what you would like the business to evolve into and achieve in the future

Description of Product and Services

• Provide a description on the type of product(s) manufactured/service(s) provided
• State which part of the supply chain i.e. as a service provider, manufacturer (Original Equipment Manufacturer (OEM) or a supporting industry), marketing/sales agent, wholesaler, supply contractor, construction etc
• Volume of sales or production per annum
• Nature of business cycle; regular or cyclical
• Nature of products

Industry and Competitor Analysis

• Provide a brief overview of the industry's structure and characteristics; the degree of competition and entry barriers
• List out the company's key competitors, their market share, strengths/weaknesses compared to the company's own position
• Identify the threats, risks and opportunities present

Business Strategy

• The development of a right strategy is crucial for the eventual success of the business
• The strategy should be based on your company's strengths and critical success factors in respect of competition and industry
• Effective strategies should focus on the uniqueness or distinctiveness of your product or service
• Your company's strategy should be dynamic
  (i.e. adapted to address a changing operating environment in the long run)

Generic Strategies

• Low cost producer
• Differentiation; product offering is unique
• Focus; serving a niche market, product line segment or geographic market

Operational Requirements

Personnel

• List down type and number of staff required for key management posts, production, marketing and sales
• Source and availability of labour; skilled, unskilled, technical
• Training and incentives to retain these personnel

Production/Manufacturing Processes

• Extent of automation of production processes; technology required and technical agreements/support secured
• Types/make of key machinery used
• Production capacity/shift
• Main raw materials/components

Customer Service and After Sales Support

Provide a brief outline on the company's programme for after sales service and support to build customer loyalty, increase repeat buys and the promotion of other products/services

Business Cycle, Buyers, Suppliers & Terms of Trade

• Key buyers, sales volume, frequency and collection term
• Key suppliers, purchase volume, frequency and payment terms
• Details of concessions/contracts with suppliers and buyers
• Business cycle (e.g. list of the key milestones, period taken and terms)

Sales and Marketing Strategies
Provide a brief outline of the company's marketing strategies for getting customers to buy your products and services in respect of its marketing mix i.e. product, pricing, channels
(sales) and promotions

Financial Forecast

• 3 forecasts are required:
  – Profit and Loss
  – Cash Flow
  – Balance Sheet
• These are to be projected on a monthly basis for the next 12 months and on an annual basis for the next 2 years
• Assumptions Used
  Provide the key assumptions used as follows:
  – % costs of key expenses, raw materials, labour, commissions
  – % of credit and cash sales
  – Credit period given and received
  – Inventory period
  – % growth per annum

The format of profit and loss, cash flow and balance sheet projections are not included herein.