What they look in for Financing a Small Business Enterprise?

Small business enterprises need finance for starting up of the project. Its requirement of finance during the growth period is inevitable. Again the need for finance continues as the enterprise goes to expand its business portfolio. Hence, as a financial institution, the banker has to study the company's needs carefully and follow the principles and practices of advancing to a small business.

KIND OF SMALL BUSINESS:

A small business may be a production oriented company owned by an individual, partnership or a private limited company. It could be a distribution company dealing only with sales and marketing of one or more commodities or engineering goods or spares. It may well be a service oriented small business enterprise.

PRODUCTION ORIENTED NEEDS:

If it is a production oriented company, it may also seek finance for construction of a factory shed and storage warehouse. It may need a good financial support from a bank for procuring modern machineries. The raw material purchase may also need financial backing to run the business more effectively.

DISTRIBUTION NEEDS:

After the goods are manufactured and stored, the company may be requiring the banker's help in sales process through bills or checks discounting facility. This is about availing the bankers funds against the stocks sold while the sale proceeds may take some time to realize.

To tide over the situation one needs funds for procuring the raw materials for continuing the production process. The money is paid back with interest as soon as the bills or checks are realized.

EXPORT NEEDS:

If the small business is export oriented, the company may need a facility like letter of credit. The importer may open a letter of credit in his bank and the bank will pay the exporter's due within the terms of the agreement.

In all these cases, right from construction of building and infrastructure up to the distribution of commodities by retail selling, whole sale marketing or international business, the company needs finance to manage business operations.

GUIDING PRINCIPLES AND PRACTICES:

To meet the requirements, the financial institution will have to go through a series of guidelines and procedures to help the small business enterprise and at the same time safe guard the banker's money.

1. Study the financial status of the small business enterprise including the assets and securities. Study carefully the technical feasibility of project or distribution of the commodities. Also study the financial viability of the project.
2. Study the repayment capacity of the partners and the members of the private limited company in the event of failure of the project.
3. Study the needs and amount of money required for the operations of the project.
4. Obtain all the legal documents and agreements duly signed and mortgage properly created in favor of the banker.
5. Please be vigilant to see the money is disbursed or used only for the purpose it is sanctioned.
6. Take some true interest and watch the operations of the small business that generates income to the small business.
7. Be watching and make demands to get the repayments at the time of income generations and at the time of scheduled repayments.
8. Keep always the loan documents intact and legally worthy to recover through the court of law if the company becomes a willful defaulter.
9. Be cooperative with the clients and see that they wish to deal exclusively with you to avoid their profits and income to spill over to other bankers.
10. Study the company's emergency requirements and meet the temporary needs also. This will make them not to move to other financial institutions. Take care to recover them then and there.

MEET BOTH ENDS:

In financing small business, care is taken to see it is purpose oriented and at the same time secured by tangible assets and honesty of the company. This will meet the requirements of the both the small business enterprise and the banker.

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