3 of 22

Introduction

All businesses, no matter what size, will at some time need to raise more money.
For small businesses, the owner may be able to dip into his or her personal savings, or friends may be able to lend the needed money.
Most times the owner will have to look to outside sources for financing

Group Question: What is Credit?

4 of 22

Introduction to Borrowing

Cash-is-King

All businesses, no matter what size, will at some time need to raise more money.

What do you need money for in your business now?
Have you thought about expanding your business?
What will that cost?
How will you finance the expansion?

5 of 22

Sources of Finance

Bootstrapping with very small amount of money/saving/re-investing
Savings
Relatives, Friends or Colleagues
VSLAs / ROSCAs
Cooperative & SACCOs
Micro-finance, Lease/rent-to-own
Commercial Banks
Seeking Investment - Advanced

6 of 22

Are you Credit Worthy?

What is your character and history -- will you want to repay the loan?
How capable are you in managing the business -- will you be able to repay the loan?
What is the specific purpose of the loan? Is it a short- or long-term need?
Do you have a clear financial plan and forecast showing why you need the loan and how you will pay it back?

7 of 22

Are you Credit Worthy (Cont’d)?

Is the loan request large enough to cover any unexpected change in your situation, but not so large that its repayment will be a heavy burden?
What is the general economic outlook for your business and industry?
Do you have a reasonable amount at stake in the business?
What collateral is available to secure the loan amount?

8 of 22

Are you Credit Worthy?

Writing or Drawing Exercise

Self Reflection 3 min / Plenary Sharing & Discussion 7 min

Have you ever borrowed money for your business? If so, what was the process / repayment process like?

What went well?
What were the challenges.

If you have not taken a loan?

What are your opinions about Loans?
What are you concerns / fears?
Would your consider it? Why or why not? Under which circumstances?

9 of 22

Bank’s Approval Process

Purpose of the loan:

Will it improve your profitability?
Long-term or short-term investment?

Long-term: Equipment, infrastructure
Short-term: Inventory, farm inputs

Do you have a Financial Plan?

What exactly is it for : Budget & Cashflow
Should show Profitability : Income statement
Ability to Pay back the loan : Cash Flow

10 of 22

Bank’s Approval Process Cont’d

Bank Collaterall/Security Requirements
Guarantors/Endoser
Chattel Mortagages
Titled land /Kibanja
Ware house recipts
Savings/Fixed Deposit Certificates
Real Estate
Floor planning
Inventory/Stock
Accounts Receivable
Stocks and Bonds

11 of 22

Bank Approval Requirements Cont.

SKIN-IN-THE-GAME: Have you made your own investment?

Cash
Time
What have you risked for your business?

Any Record of repayment of another loan?
How old is your business?
What are last year’s Revenues
Borrower’s commitment to their business

12 of 22

Basic Financial Information Lenders Want

The two basic financial documents that lenders require are the balance sheet, Cash flow and the income statement. The balance sheet is the major yardstick for solvency and the income statement is the common measure of profits.
General Questions:
Are the business' books and records up-to-date and in good condition?
Does the business have an accountant? Who manages money?
Who are the customers and what percentage of total sales do the largest customers represent?
Are all obligations paid promptly? Creditor and Debtor Days?
In some cases, what is the insurance coverage?

13 of 22

Basic Financial Information Lenders Want

Accounts Receivables (inflows)

What is the quality of the accounts receivable?

How much money will come in as Revenue?

Have any been pledged to another creditor?

Are customers paying you promptly?

Is there an allowance for bad debts?

14 of 22

Basic Financial Information Lenders Want

Fixed Assets and Equipment

Do you have machinery or equipment? What is it’s?

What is the type, age and condition of equipment?

What are the depreciation schedules?

Do you or your business own land, buildings ?

What are the details of mortgages or leases?

What are the future fixed asset and PUE equipment needs for the business?

15 of 22

Basic Financial Information Lenders Want

Inventory

Can the merchandise be sold at full price?
How much raw material is on hand if in manufacturing?
How much work is in progress?
How much of production is finished goods?
Is too much money tied up in inventory?

16 of 22

Collateral/ Security

Sometimes your signature, cash flow and general credit reputation are the only collateral the bank needs to make a loan. This type of loan is called unsecured;
For secured loans, the bank requires a pledge of some or all of your assets as additional assurance that the loan will be repaid. Some types of security are:

Guarantor/Endorser;
Titled Land or Untiltled Kibanja
Warehouse Receipt;
Floor planning (merchandise such as cars);
Asset Financed, Leases, or chattel mortgages;
Accounts receivable;
Inventory;
Stocks and Bonds

17 of 22

What type of Loan/facility do you want?

Line of credit;
Instalment loan
Short term loan
Long term loan;
Asset or equipment purchase facility
Working Capital Facility;
Grant, etc.

18 of 22

The Loan Agreement: What you need to know

A loan agreement is a tailor-made document, fully stating all the terms and conditions of the loan.
It gives the amount of the loan and terms of repayment, identifies the principal parties and lists any restrictions placed on the borrower.
Agreements have limitations that restrict what an owner can do. These limitations depend to a great extent on the borrower. If the borrower is a good risk, the limitations will be minimal. A higher risk borrower, on the other hand, will have greater limitations. The three principle limitations involve repayment terms, the use of collateral and periodic reporting and lists any restrictions placed on the borrower;

19 of 22

Loan Agreement: What you need to know

Negative covenants are restrictions placed on the borrower by the lender. Some examples are limitations on the borrower's total debt, agreement not to pledge assets to other creditors and limitations on the number of dividends that may be issued.
Positive covenants are all actions the borrower must agree to. They include maintaining a minimum working capital, carrying adequate insurance, adhering to the repayment schedules and supplying the lender with regular financial statements and reports.

20 of 22

The role of Women Networks – join/form one

Women networks or self-help groups can include your local group, a cooperative, a district level Community Based Organisation or a National Level Women Association such as UWEAL
Such are a source of networks;
Provide access to information on opportunities;
Provide advisory services;
Provide access to finance support e.g. UWEAL;
Access to higher level networks – donors, private sector bodies, investment promotion agencies

21 of 22

What Networks can help with

Activity’s Support Area	Possible Support Areas
Provision of Market Intelligence	provide market intelligence to capital seekers, breaking down the information asymmetry barrier.
Preparation of Financing Documents	Support capital seekers in the preparation of financing documents. i.e., business plans, financial models, valuation, pitch deck, etc.
Due Diligence	Screen the commercial and social impact potential of PUE projects, including detailed operational and commercial due diligence assessments of potential investment beneficiaries

22 of 22

Possible support by Self Help Networks

The Activity’s Support Area	Possible Support Areas by Self Help Groups
Preparation of Business plans	Provide BDS support to the Women in preparing and refining bankable business plans
�Linkage with Service Providers	Support the Women in finding the right service providers, including business and financial advisors, auditors, financiers, as well as legal counsel to support investors on active transactions.
Loan Acquisition / Execution	Support women in linking them to some Financial institutions that would be willing to work with them and advance them loans for either PUE Equipment acquisition or working capital. Also explain the terms of the financing agreements and any conditions therein.
After care support	Provide business facilitation support to the Women to ensure that financing closed is appropriately used, opportunities for diversification are identified and new prospects explore.