Finance Process is initiated once you have provided all the required information to the bank. It will start processing your request by preparing internal memos to seek an approval from the concerned authority in the bank/financial institution. They will send an independent Valuator to get your security evaluated who assesses the value of your proposed asset as security. If it is a property or a machine or stocks they take pictures of the premises/assets and make an independent valuation report. All banks have panels of Valuators as per the lists maintained and approved by the Pakistan Banking Association (PBA). The list changes over time with valuators approved and/or blacklisted as the case may be.
The proposed property documents will be sent to a lawyer on the bank's panel who will ascertain that the ownership of the property is correct and that the bank can use it as a collateral and also that it can be mortgaged in favor of the bank/FI. Once the required valuation from a PBA approved Valuator and property review from a lawyer on the bank's panel is received the detailed process of credit evaluation is initiated.
When you have submitted all the required documents to the relationship manager a detailed due diligence process is initiated. In this process the bank staff embarks on initiating discussions regarding your suppliers and your buyers. . The due diligence includes your business relationship with vendors and customers. The demand of your product and supply in the market.
The credit analyst i.e. the bank official preparing your case also conducts a sector and an industry research which covers the overall economic condition of the country. The socio-economic factors such as job creation and poverty elevation are in built in each proposal summary.
The bank personnel assesses the actual financial performance of your entity over a period of at least three years for an established company or three to five year projections of a newly established business. The further conduct a comparative analysis with your peers/competitors to assess your position in the sector of related industries/services. Certain financial ratios are calculated from your given account statements and information regarding your repayment capabilities are assessed without causing financial burden on your business cash flows. A complete cash conversion cycle is calculated from purchase of inventory to the receipt of receivables.
The bank personnel pays a visit to the premises of your company/business to assess your set-up. It can even be a home-based business in which case they visit the home office. it needn't be a very elaborate set-up. Assessment is of business activities and the adherences required to ethical and best business practices for that particular segment. The bank manager reviews the working conditions for workers also well and assesses the number of employees and their age brackets.
It is part of the overall financing of small entities to assess the employment generation capacity of the entity and how the financing can improve the same.
After compilation of a credit proposal and its supporting documents along with the site visit report, the entire set of documents consisting of valuation report and lawyer's property review, the next step is for the assessment of the credit proposal form the perspective of Credit Risk assessment. After implementation of Basel accords, extensive credit risk requirements have been put in place by the regulators on financial institutions for strict adherence. These requirements are placed with a view to avoid any credit related risks to create another 'financial meltdown' of 2008-like situation in future.
The process of credit risk entails review of the proposal from the perspectives of internal policies, external regulation encompassing credit risk, environmental risk, structural risk and any other as specified by the regulators and other agencies. The risk assessment is based on quantitative and qualitative models that generate ratings for th e review of the senior management on a case to case basis.
Upon completion of the risk review the case is presented for the approval of the competenet authority which can be different in each FI.
After receiving approval for financing the person you are dealing with i.e. Branch Manager or Relationship Manager, will request you to provide with all the original documents that they can retain in their custody. Mortgage will be executed as a token registered mortgage at the registrar's office, in case of financing against property. Documents to cover the transactions are drafted by the legal team and sent for execution i.e. signing of the same by the client i.e. you. Each type of financing has a different set of documents to be prepared.
Once all the formalities are completed the Bank or Financial Institution will issue a Cheque/Demand Draft or Pay Order in favor of the enterprise raising finance. Online transfer of funds has also been introduced through the Real-Time Gross Settlement (RTGS) system to facilitate borrowers with instantaneous online fund transfer.
If you have obtained running finance then an account is opened in the bank where you can withdraw from and deposit in on a need basis. You can withdraw on a daily basis and also deposit on a daily basis. Always try to reduce the outstanding balance as soon as you can because as long as the balance is outstanding you pay mark-up/interest on it.
After disbursement the process of monitoring by another set of dedicated staff from the bank continues to remain in contact with you to have an idea regarding proper utilization of funds and your financial needs with the growing business. It helps in inculcating the habit of financial management in the borrowers.
In case the bank/FI personnel notices deviant behavior, they immediately raise red flags and alert the recovery team to be on the watch. The client is then placed on a watch list and its behaviour is closely monitored till they come back on track or avenues of exit are explored by the bank.
Manage your Finances efficiently and you will grow your business. Poor financial management causes businesses to fail terribly. It is easy to raise finance and blow it away but very hard to pay it back if you use it in unproductive activities.
Be very frugal and even miserly where you can save even a small amount. But do not pinch pennies where you have to spend as it is equally important to keep the business well funded.