SME SHort Notes on 'Asset based financing'

Posted by Ripon Abu Hasnat on Saturday, November 28, 2015 | 0 comments | Leave a comment...

A specialized method of providing structured working capital and term loans that are secured by accounts receivable, inventory, machinery, equipment and/or real estate. This type of funding is great for startup companies, refinancing existing loans, financing growth, mergers and acquisitions, and management buy-outs (MBOs) and buy-ins (MBIs).  An example of asset-based finance would be purchase order financing; this may be attractive to a company that has stretched its credit limits with vendors and has reached its lending capacity at the bank. 

The inability to finance raw materials to fill all orders would leave a company operating under capacity. The asset-based lender finances the purchase of the raw material, and the purchase orders are then assigned to the lender. After the orders are filled, payment is made to the lender, and the lender then deducts its cost and fees and remits the balance to the company. The disadvantage of this type of financing, however, is the high interest typically charged - which can be as high as prime plus 10%. In the simplest meaning, asset-based lending is any kind of lending secured by an asset. This means, if the loan is not repaid, the asset is taken. In this sense, a mortgage is an example of an asset-backed loan. More commonly however, the phrase is used to describe lending to business and large corporations using assets not normally used in other loans. 

Typically, these loans are tied to inventory, accounts receivable, machinery and equipment. This type of lending is usually done when the normal routes of raising funds, such as the capital markets (selling bonds to investors) or normal unsecured or mortgage secured bank lending is not possible. This is usually because the company was unable to raise capital in the normal marketplace or needs more immediate capital for project financing needs (such as inventory purchases, mergers, acquisitions and debt purchasing). It is usually accompanied by higher interest rates, and can be very lucrative for the parent company. For example, the bank Wells Fargo made more money from asset-based lending business than it did the rest of its corporate business (both lending and fee based services). Many financial services companies now use asset-based lending package of structured and leveraged financial services. Most banks, both national investment banks (Goldman Sachs, RBC) and conglomerates (i.e. Citigroup, Wells Fargo), along with regional banks, offer these services to corporate clients.

Tagged with , , ,

What are the assumption of of BEP analysis?

Posted by Ripon Abu Hasnat on | 0 comments | Leave a comment...

The Break-even Analysis depends on three key assumptions:

Average per-unit sales price (per-unit revenue):
This is the price that you receive per unit of sales. Take into account sales discounts and special offers. Get this number from your Sales Forecast. For non-unit based businesses, make the per-unit revenue $1 and enter your costs as a percent of a dollar.
Average per-unit cost:
This is the incremental cost, or variable cost, of each unit of sales. If you buy goods for resale, this is what you paid, on average, for the goods you sell. If you sell a service, this is what it costs you, per dollar of revenue or unit of service delivered, to deliver that service. 

Monthly fixed costs:
Technically, a break-even analysis defines fixed costs as costs that would continue even if you went broke. Instead, we recommend that you use your regular running fixed costs, including payroll and normal expenses (total monthly Operating Expenses). This will give you a better insight on financial realities. If averaging and estimating is difficult, use your Profit and Loss table to calculate a working fixed cost estimate—it will be a rough estimate, but it will provide a useful input for a conservative Break-even Analysis.

Tagged with ,

Eligibility for equity support from the Equity and Entrepreneurship Fund Unit (EEF)

Posted by Ripon Abu Hasnat on | 0 comments | Leave a comment...

1.    The project will have to be a new one and belong to either of the sectors viz., software industry or food processing and agro-based industry.

2.    The sponsors/entrepreneurs applying for EEF support will have to be a private limited company registered under the Companies Act, 1994 and established old companies can also apply for EEF support by setting-up a subsidiary new private limited company. But in case of a software company registered on or after 01 January, 1997 will be treated as a new company.
3.    The total project cost ( including net working capital ) of the proposed project will have to be of minimum 0.50 (half) core for both IT and agro-based industries and that of the maximum is Taka 5.00 Crore for IT& Taka 10.00 Crore for agro –based industries . Project proposal with bank loan is not allowed for agro –based industries but allowed for IT industries.

4.    The project shall have to be viable technically & financially .It should be environment friendly. Importance shall be given on the appraisal of the entrepreneurship such as educational qualification in the relevant discipline, knowledge in the technology/ process operating such project, track records in financial conduct specially with Banks/FI. In case of ratio analysis the project has to offer minimum IRR (Internal Rate of Return) of 15%, Return on equity (ROE) of 15% Debt service coverage Ratio 1.50:1 Current ratio 1.50:1 and Fixed asset coverage ratio 1.50: 1 and SWOT analysis should have to be acceptable.4. The project shall have to be viable technically & financially .It should be environment friendly. Importance shall be given on the appraisal of the entrepreneurship such as educational qualification in the relevant discipline, knowledge in the technology/ process operating such project, track records in financial conduct specially with Banks/FI. In case of ratio analysis the project has to offer minimum IRR (Internal Rate of Return) of 15%, Return on equity (ROE) of 15% Debt service coverage Ratio 1.50:1 Current ratio 1.50:1 and Fixed asset coverage ratio 1.50: 1 and SWOT analysis should have to be acceptable.

5.    The non-resident Bangladeshis will be given preference subject to the fulfillment of the terms & conditions mentioned in the above paragraphs.

6.    Any defaulter (as defined by Bangladesh Bank) cannot apply for EEF.

7.    Where a sponsor of a project needs term-loan and /or working capital loan from any Bank/FI and also equity support form the EEF, he has to submit application to the Bank/FI concerned. The Bank/FI will have to be satisfied that the project has fulfilled all the terms and conditions required. Where the sponsors/entrepreneurs need only equity support from EEF without any bank loan a Bank/FI will be nominated as representative of EEF for appraisal of the project by Bangladesh Bank(EEF) . To nominate such Bank/FI, previous business relationship of entrepreneur with the Bank/FI will be  considered. The concerned Bank (which will also act as monitoring bank) will make thorough appraisal of the project in accordance with EEF rules and guidelines and if the bank is satisfied about the viability of the project they shall send the project proposal with specific recommendation to Bangladesh Bank. The Bank/FI may determine their project examination fee according to their existing rules. Bangladesh Bank, EEF Unit will re-examine the project appraisal and perform pre-sanction visit if necessary. Then EEF  Unit will place it with specific recommendation before the Technical Advisory Committee (TAC). TAC is a four member expert Committee under the chairmanship of the Governor of the Bangladesh Bank. This Committee is the ultimate authority to approve the projects. When a project is approved by the TAC, EEF Unit will issue a sanction letter to the concerned  entrepreneur instructing them to invest their portion of equity within a certain period of time.

Tagged with ,

Steps/ Measures taken by Bangladesh Bank for SME Development

Posted by Ripon Abu Hasnat on Sunday, June 22, 2014 | 0 comments | Leave a comment...



Bangladesh Bank has already introduced several schemes and programs to flourish and expand SME Enterprises. Refinance scheme funded by Bangladesh Bank, IDA and ADB has been facilitated for the development of SME Sector. Besides, to ensure institutional financial facilities under easy conditions Bangladesh Bank has taken diverse steps; like opening of ‘Dedicated Desk’ for SME and ‘SME Service Centre’ in the banks and special facilities for the women entrepreneurs. But reality is that expected outcome has not been achieved so far in this sector.

In the back drop of recent global recession and changed circumstances, it has become essential to include all segments of people in the growth process through facilitating credit to the sectors where less attention has been given due to present market mechanism, specially, in agriculture and SME sector. Reasonably, a new department namely ‘SME and Special Programmes Department’ has been established in Bangladesh Bank recently which will be solely responsible for policy formulation, facilitating fund, monitoring and development of entrepreneurship in the SME sector.

The guidelines formulated by the newly created department for compliance of the banks and financial institutions for the development of SME sector are enumerated below:

Target for SME loan disbursement
For the first time in Bangladesh, an indicative target for SME loan disbursement has been set for 2010 by the banks and financial institutions considering SME development as one of the most important development agenda of the country. According to the target, SME loan shall be disbursed to the small, medium and women entrepreneurs.

Following the 'Area Approach Method'
Following the 'Area Approach Method' banks/financial institutions will try to attain their indicative targets separately by dividing it as branch wise, region wise & sector wise.

Separate business strategy in financing SME
Each bank/financial institution shall follow a separate business strategy in financing SME loan with least formalities in executing documentation to ensure easy and speedy loan sanction and disbursement process.

Priority given to small entrepreneurs
Priority shall be given to small entrepreneurs.

Small entrepreneurs credit limit
For small entrepreneurs credit limit will be ranged from Tk. 50,000 (Fifty thousand) to Tk. 50,00,000 (Fifty lac).

SME credit disbursement to women entrepreneurs
For more participation of women entrepreneurs in industrial development of the country and for conducting business activities by women entrepreneurs in large number, priority shall have to be given to potential women entrepreneurs in respect of SME credit disbursement.

Highest priority in receiving loan application from women entrepreneurs

Banks & Financial Institutions shall put highest priority in receiving loan application from small and medium women entrepreneurs and settle the loan disbursement process within very reasonable time from the date of acceptance of the application.

Separate ‘Women Entrepreneurs’ Dedicated Desk’
Each bank and financial institution shall establish a separate ‘Women Entrepreneurs’ Dedicated Desk’ with necessary and suitable manpower, provide them training on SME financing and suiltably appoint a lady officer as chief of dedicated desk. Branch wise list of ‘Women Entrepreneurs’ Dedicated Desk ‘should be sent to SME and Special Programs Department of Bangladesh Bank within two months from the date of declaration of this policy and programme.

Loan to women entrepreneurs against personal guarantee
Banks and financial institutions may sanction up to Tk. 25,00,000 to women entrepreneurs against personal guarantee. In that case, group security/social security may be considered.

Considered as yardstick for new branches
The success in SME loan disbursement will be considered as yardstick for further approval of new branches of the concerned bank. License for New Branches will be issued for financing the priority sectors like SME and agriculture from 2010 in the name of ‘SME/Agriculture Branch’ instead of ‘SME Service Centre; in order to involve banks in financing priority sector like SME and Agriculture’.

Fixing the interest rate
Each bank/financial institution shall fix the interest rate on SME loan sector/sub-sector wise. However, bank/financial institution will inform Bangladesh Bank sector/sub-sector wise rate of interest immediately and ensure disbursement of refinanced fund to the clients (women entrepreneurs) at Bank rate +5% interests.

Training programs
Training programs shall be arranged for the entrepreneurs.

Tagged with

.

.

Subscription

You can subscribe by e-mail to receive news updates and breaking stories.

Most Popular

Tag Cloud

Labels

Recent News

Archives