How to Raise Finance?

How to Raise Finance - Requirements 

how-to-raise-financeHow to Raise finance

What are the requirements for 'How to Raise Finance '?This is a question that comes to the mind when you get down to raising finance from a formal source. As you understand what you need in terms of the amount, repayment period, rate and type of finance; you need to proceed with planning the execution of your financing requirement. There are terminologies that bankers use which sound difficult but actually are quite simple if explained by competent experts.

How to Raise Finance - Account Statements

You have over the months/years recorded transactions to generate the following books of accounts:

  • Balance Sheet
  • Income Statement
  • Cash Flow Statement

As we discussed in the Business Planning segment, you have taken a long term view of the various strategies to be employed to make your business or firm a success.

You decided that once your company has reached a certain level of growth you will need more finance. So you started setting up simple systems to manage your business by maintaining regular books of accounts, recording each transaction, measuring revenues and controlling expenses and so on.

In the Balance Sheet you have your Capital Structure i.e. all the Equity you put in plus the Liabilities you raised and these all should add up to give you the Assets you have created by all the money you have put in the business.

In the Income Statement you have recorded all the Revenues you have earned and all the expenses you have made in running your business. The difference of the Revenues and Expenses will be your Net Profit if you made money or Net Loss if your expenses are more than your income.

The Cash Flow Statement is the movement of cash in two periods of time and is made using both the Income Statement and the changes in Balance Sheet accounts. It gives you a clear picture of how much money or Cash actually came into or went out of your business.

MizLink Pakistan assists its members in providing business services to make them bankable.

How to Raise Finance - Your Income streams

When you approach a financial institution for financing you should be very clear about your Business Model, your supply chain and your client base. Your marketing strategies and the period for which you have to hold inventories and in what quantities.

Give the contact information of some of your vendors/suppliers and some of your buyers. Show your marketing material and samples if any. If you sell at exhibitions, show pictures of your stalls and also the sales results.

Write a letter to the Bank requesting for the amount that you need and the security you can offer and also request for an appointment to personally meet the concerned official. You may fill an Application Form as per the bank's format which is available on their websites in English and Urdu, both.

How to Raise Finance - Security requirements

The security required to obtain any financing is also termed as 'collateral'. This is only a term used by financial institutions which should not confuse you as it means the same as security. Coming on to types of security - there can be pledge of goods, hypothecation of stocks, charge on receivables, charge on current and future assets etc.

These processes are the same whether you have a sole proprietorship, partnership or a company. However, in case of charge registration where assets are hypothecated in favor of the bank/FI it has to be a company. Recently a Secured Transaction Registry for movable assets has been created by the Securities and Exchange Commission of Pakistan (SECP) pursuant to the Financial Institutions (Secured Transactions) Act 2016. It will be used to register security charges created by entities other than companies thereby supporting the SME sector to provide better security structures to the financial institutions. Moveable assets include agricultural produce, stocks, receivables, intellectual property, vehicles etc.

State Bank of Pakistan has introduced a women specific financing scheme by the name of 'Refinance and Credit Guarantee Scheme for Women Entrepreneurs'. The salient features of the scheme include a Credit Guarantee upto 60% of the credit which makes it very easy for women to provide the remaining 40%.

The amount under the scheme has been increased to PKR5 million per client.

Types of Finance help you understand what kind of collateral might be required by your banker. The link is given below ... and then have a look at how the whole Finance Process will flow ... It varies from bank to bank, here we have given just a basic, general idea.

How to Raise Finance - Checklist 

Here we can have a checklist of the basic information and as much of it as possible that the banker may require from you:

  • Profile of your business including list of products/services and other related information
  • Application form duly filled, signed & stamped  by the authorized signatory(ies) 
  • Copies of CNICs of sponsors (Proprietor/Partners/Directors)
  • Signature Verification (as per format attached) to be signed by the authorized signatories/Directors/Proprietor/Partners and verified by your bank.
  • Proprietorship certificate from Bank (In case of proprietorship) and Bank Statement for last six months
  • Tax Returns for last two years and other related documents (If available)
  • Available Audited or Management Accounts for last three years
  • Projections of your business for next 3 to 5 years (In case of new business)
  • Last three months ledgers for Sales and Expenses
  • Breakup of Revenue and Accounts Receivables along with ageing 
  • Details of Assets/Vehicles/Equipments/Property to be hypothecated or pledged along with fresh valuation report.
  • The banker will provide you with a statement called BBFS - Borrowers Basic Fact Sheet which gives information pertaining to the borrowings a firm may have from other financial institutions and also of other partners, directors etc.

Mizlink Pakistan assists our members in compilation of information to make you 'bankable.'

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