Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsIt is important to remember that there will be a number of costs that you willhave to pay when the lender provides the loan. Some of these costs will have tobe paid at the time the loan is made available; other costs will be incurred overthe loan period. Make sure these costs are included in your cashfl ow forecastto ensure that you would have adequate funds to cover all costs. Upfront costsmay include establishment fee, guarantee fee, legal fee or valuation fee whileongoing fee may include half-yearly loan charges, interest, transaction fee ordefault fee.When determining the amount of funds you would like to apply for, you shouldalso consider including a ”buffer” amount, in addition to the costs associated withthe loan funds. This is an amount above what your plan shows as the minimumamount required to fi nance your activities. Generally speaking, it is not possibleto forecast all events. A buffer will allow for any unexpected expenses or lowerthan expected income that is earned over the period of the loan. You will needto make an assessment of an adequate ‘buffer’ amount. Discuss this with thelender, as they may be able to assist in determining the level of contingencyrequired.Term of the LoanThrough your planning, it will become obvious how long you will need the funds.A cash fl ow forecast shows the movement of cash in and out of the business,and indicates when the business will be in a position to repay the funds. Anotherimportant factor in determining the term of the loan is the type of loan that youmay be seeking. Some types of debt fi nance have a maximum term available.For example, where funds are required to purchase an asset, a lease may bethe most appropriate debt product and the lease company may only providelease funds over a maximum of fi ve years. So again, the cashfl ow forecast willassist in determining what types of fi nance products you can consider.Servicing the LoanThe most important element of the loan application is to show the lender that thebusiness has suffi cient cash fl ow to make the regular loan repayment, includingall the associated costs of the loan, over the loan period, and ultimately repay theloan. This will entail having a good understanding of your fi nancial statements,most importantly the cash fl ow forecast. You must be in a position to make astrong justifi cation to the lender on how the forecast cash fl ow will adequatelysupport the repayment obligations of the loan within the allocated time frame.Reviewing the fi nancial ratios on your forecasted profi t and loss and balance136chapter 7-13 p79-181 Eng.indd 1368/15/11 5:03:04 PM