A Guide to SME Financing PDF
Preview A Guide to SME Financing
A Guide to SME Financing DOI: 10.1057/9781137373786 Other Palgrave Pivot titles Claudio Giachetti: Competitive Dynamics in the Mobile Phone Industry R. Mark Isaac and Douglas A. 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McKenna: College Student Voices on Educational Reform: Challenging and Changing Conversations Raphael Sassower: Digital Exposure: Postmodern Postcapitalism Peter Taylor-Gooby: The Double Crisis of the Welfare State and What We Can Do About It Jeffrey Meyers: Remembering Iris Murdoch: Letter and Interviews DOI: 10.1057/9781137373786 A Guide to SME Financing David Munro DOI: 10.1057/9781137373786 a guide to sme financing Copyright © David Munro, 2013. Softcover reprint of the hardcover 1st edition 2013 978-1-137-37575-9 All rights reserved. First published in 2013 by PALGRAVE MACMILLAN® in the United States—a division of St. Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN: 978–1–137–37378–6 PDF ISBN: 978–1–349-47742-5 Library of Congress Cataloging-in-Publication Data is available from the Library of Congress. A catalogue record of the book is available from the British Library. First edition: 2013 www.palgrave.com/pivot DOI: 10.1057/9781137373786 For PP DOI: 10.1057/9781137373786 Our remedies oft in ourselves do lie. Which we ascribe to Heaven. William Shakespeare, All’s Well That Ends Well DOI: 10.1057/9781137373786 Contents List of Illustrations x Acknowledgments xi Introduction: The Actuality and the Potential of SMEs in Developing Economies 1 1 What Is an SME? 7 SMEs are not micro-enterprises 9 Characteristics of SMEs 9 SMEs are not large enterprises 10 Corporate governance options 11 Sole proprietorships 11 Partnerships 12 Corporations 12 Limited liability partnerships 12 Limited liability companies 12 2 Why Are SMEs Appropriate for Bank Financing 14 Micro-enterprise lending methodologies 15 SME lending methodologies 15 3 How May Banks Address the Constraints and Perceived Drawbacks to Financing SMEs? 18 Lack of financial records 20 Lack of collateral 25 DOI: 10.1057/9781137373786 vii viii Contents High transaction costs 27 Management 29 Staff training 31 4 An Outline of the Credit Application, Analysis, and Approval Process: The Centrality of Credit Analysis 32 Credit analysis 33 Elements of a credit analysis 35 5 Streamlining and Templatizing the Credit Analysis Process 48 The Credit Score Card 49 The Application/Analysis/Approval form 50 Revolving credits 51 Fixed asset loans 52 Revolving credit loans and the revolving credit template 52 Explanation of calculations on the revolving credit application/analysis/approval form 54 Fixed asset loans and the fixed asset loan template 57 Recommendation and approval section 58 6 Staff Training 60 Credit course outline 62 7 Documentation: Loan Agreements and Documentary Requirements 64 Loan agreement covenants 65 Conditions precedent 65 Representations and warranties 65 Events of default 66 The Promissory Note 67 Liens 68 Documentary requirements 68 Reviewing documentation prior to disbursement 69 Domicile of documentation 69 Signing the loan agreement and other documentation 69 DOI: 10.1057/9781137373786 Contents ix 8 Marketing and Creating a Portfolio 70 9 Monitoring SME Loan Income/Performance Monitoring of Credit/Marketing Officers 74 10 Reports, Repayment Monitoring, and Collections 77 Reports and repayment monitoring 78 Collections 78 11 Setting Up an SME Unit—Is It a Good Idea? 80 12 Value Propositions/Types of Products 83 What SMEs expect from their bank 86 13 The Role of Loan Guarantees 88 The case for loan guarantees 89 The case against loan guarantees 90 14 Conclusion 92 Appendix I: Credit Score Card Model 96 Appendix II: SME Model Loan Application 101 Appendix III: SME Lending Performance Planning Form for Loan Officers 108 Appendix IV: Initial Site Visit Report Checklist 110 Appendix V: Credit Outstanding and Past Dues Report 111 Appendix VI: Account Profitability Summary Report 112 Glossary of Terms 113 Index 117 DOI: 10.1057/9781137373786
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