Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEssheet will also provide information on the expected profi tability and fi nancialhealth of your future business operations.Security for the LoanFor most types of loans, lenders will require security (also known as “collateral”)over the loan. As part of your preparation, make sure you identify what securityyou are prepared to offer a lender. Appropriate security provides the lender withsome comfort that in the event the business is not able to repay the loan fundsborrowed, they can liquidate the security items to repay the outstanding funds.For a successful loan application, it is important that the security offeredmatches both the type of loan being made and the lender’s perception of therisk associated with the loan application. For example, where the loan is fora medium term of three years, inventory or customer receivables will not beacceptable as they are short-term assets. The lender will be looking for securitythat has value that exceeds the duration of the loan. Therefore, more appropriatesecurity would be equipment or property that has a valuation in excess of theloan over a lifespan of more than three years.It is recommended that you identify and provide details to the lender of thesecurity available, as part of your loan application. This way, you will be ableto present your preferred security prior to the lender nominating his or herpreferred security.Forecast Financial InformationA lender will pay particular attention to the budget and forecasts, as thesewill show how your business will operate during the period of the loan. It istherefore important to know how to prepare these forecasts in line with yourlender’s expectations. By preparing both a cash fl ow forecast and profi t andloss budget, you will have suffi cient information to prepare a balance sheetbudget. Remember, a balance sheet is fi nancial information ”at a point in time”;therefore, it has less importance to a potential lender when they are reviewingforecasts. This is because they are using the forecast information as a guide to“the continuing” operations of the business, rather than ”at a point in time.”137chapter 7-13 p79-181 Eng.indd 1378/15/11 5:03:05 PM