Options for SME Funding 2012

7/31/2019 Options for SME Funding 2012

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Vanessa Adams, DirectorUSAID West Africa Trade Hub

May 9, 2012


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Business Plans

Investment Promotion

Financial Structuring

Negotiations

ManagementCoaching

Product costing andPricing


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Case Study: Nigeria Cashew Cluster FinancingScheme


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SHORT TERMFINANCING

Funding needed to cover thecosts of the purchase or

production, packaging, andforwarding of finishedproducts for delivery to

clients.

MID AND LONG TERM

FINANCING

Funding needed to supportthe export trade business

such as buildings andequipment.TIED TO

ORDERS

TIED TOBUSINESS

STRATEGY


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BASIC EXPORT TRADE FINANCEPRODUCTS

Lettersand Linesof credit

Advances

Loans


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Advances - funds orservices extended bybuyers or pre-exportsuppliers in advance of

delivery

Loans - a sum of menythat is given by one partyto another for a limitedamount of time. It is to berepaid according to termsof the loan agreement

which includes any interestto be charged and atimeframe for repayment.

Example clientadvance to acquireraw materials for

processing

Example commercial loanto acquire and install

processing equipment


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A letter of credit is a document issued by a bank that acts as aguarantee of payment to a beneficiary.

LETTER OF CREDIT

If the party (yourpurchaser or you as

it pertains to yourpre-export suppliers)do not perform theirobligations, the bank

pays.

Source of repaymentof the transactionmeaning that the

exporter will get paidwith the redemptionof the letter of credit


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Revocable letter of creditLC can be revoked by the issuing bank without the agreement of the beneficiary.

Irrevocable letter of credit

Cannot be cancelled or amended without all the parties agreement.

Standby letter of credit

Guarantee of payment. If the beneficiary does not get paid by its customer, itcan then demand payment from the bank by forwarding a copy of the invoicethat was not paid and supporting documentation.

Revolving letter of credit

It is established when there are regular shipments of the same commoditybetween supplier and customer. Eliminates the need to issue an LC for eachindividual transaction.


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Lump sum of money

Repayment by installments over a definedperiod of time (capital + interest)Loan

Maximum amount of money available

Can be used as needed

Repayment is flexible (capital + interest)

Capital reimbursed becomes available foruse

Line of

credit

LOANS ANDLINES OF

CREDIT AREDIFFERENT!


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Traditional Channels

Customers

Commercial banks

Development banks Specialized public

services

Equity partners

Other Channels

Savings and loancooperatives andassociations

Microcredit organizationstransitioning to savingsand loan organizations

Personal and/or

professional contacts andacquaintances


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Buyers and pre-export

suppliers needs assurancesbefore they will advance fundson purchasing or supplyTRUST, CAPACITY andTRACK RECORD are keys toaccess

Banks and other financialinstitutions require hard and

soft guarantees of recoveryTRUST, CAPACITY, TRACKRECORD AND thepossession ofGUARANTEEABLE propertyand/or contracts are keys to

access


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TRUST

TRACKRECORD

CAPACITY

HARD ANDSOFTGUARANTEES


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Work with and throughrecognized industry channelsand operators more dealsare made on referral than anyother way!

Work with financial institutionsthat know your industry, yoursuppliers and purchasers. If theydont know your sector, they willnot be motivated to finance yourexport activity!

Get in the financial servicesloop transactional historybuilds trust, the lack of such

is detrimental to access tofinancial services.

Use financial instituitonsthat have guarantee and/orspecial lending programs foryour industry, SME/SMI.


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Transparency and goodgovernance are key! Sharingyour strengths and weaknesseswith your partners will enableyou to work together to make adeal and to subsequently get itfinanced.

Submitting clear, credibleapplications for financing,including professionalbusiness plans, is animportant step in provingyour capacity to pay backfinancing.

Reinvesting in your business willenable you to grow capacity forbigger and better deals. If financialservicdes organizations see that youinvest in your business, they will bemore inclined to believe in yourprospects!

Opening your capital topartners with capacity youhave not yet build is a meansof acceleriating your access togood deals and necessaryfinancing.


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Start ups need not apply is very

prevalent.

Until you have a track record,you may have to depend onadvances and informal lendingchannels.Be sure to document your

successes!

Build a financial services history financial institutions makedecisions on transaction

histories and subsequentrecovery perspective!

Building Track Record


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Prevailing regulationsrequire hard guarantees upto and often exceeding 100%for commercial lending.The most recognized hard

guarantee is titled property.

Negotiating contract securitywith your purchasers is a way

to access pre-export lettersand lines of credit.

Domiciling receivables is arecognized soft guarantee for

the vast majority of financialinstitutions.

Tapping into developmentguarantees available throughspecialized public services is away of attaining guaranteecriteria.


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Applicationletter (or

form)including

specificproduct and

rate youwould like to

see applied

Synopsis ofthe businessplan specific

to theapplication

Documentati

on provingsoft and hard

guarantees youare bringing to

the table

BusinessPlan specific

to theapplication

PROMISINGAPPLICATION

FORFINANCING


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Background, experience and market

Projected sales for the fianancing period

Conditions of sale

Financing needs for the period

Projected financial results

Practical measures for re-payement of the financing

Annexes Sales contracts and letters of intent, Guarantees


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Background Legal Status

Capital and partnership

Management and technical team

Financial condition

Description of the activities of the business History of activities implemented and principal clients

Presentationof the

Business

Presentation of the products and services of the business

Source and means of supply of raw material and other components ofthe products and services of the business or of finished material forresale

Local and export markets

Market share and positioning

Sales policy and ways and means (price, marketing, distribution,etc.) Competition Strengths and weaknesses compared to competitors

Products and

Services


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Human resources

Technical resourcesInfrastructure and equipment

Financial resourcesTechnological resources

Other existing resources

ExistingResources

Product and service vision over the next five years

Expected results in terms of market share and positioning

Additional resources necessary to attain the vision (human, technical, infraand equipment, financial, technological, other)

Short, mid andlong term projects

Profit and loss over the next five years Five year projected financial planExpected results


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Examples of Alternative FinancingInstitutions

EDIF

Databank

Serengetti Capital

Root Capital

Grassroots Business Fund

Acumen Fund

Oicocredit

I&P Consult

ResponsAbility Others


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Borderless Alliance Secretariat

USAID West Africa Trade Hub

Accra, Ghana

www.borderlesswa.com

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Documents

Options for SME Funding 2012