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Real support – to real business ! www.kmf.kz

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Real support – to real business ! www.kmf.kz

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  1. Loan Officer Training: How to Assess a Client BusinessThis training instructs KMF loan officers in how to assess client businesses prior to loan disbursement. Loan officers are required to visit the client’s business location and visit the guarantor. During the visit, the loan officer completes four forms: balance sheet, income statement, cash flow analysis, and cross-check analysis (verification of the viability of the business from sources other than the business owner). These measures ensure that KMF makes quality disbursement decisions and minimizes the risk of client over-indebtedness.Almaty, 2010 Real support – to real business! www.kmf.kz

  2. Evaluate the Following Criteria During the Client Business Assessment • Business location / sales outlets • Business type and its turnover/ type of goods or services • Legality/legal status • Demand/seasonality • Range of goods/business volume • Suppliers • Business costs • Credit history/debts • Markup • Additional income sources • Competitiveness • Owner’s health status • General economic position of the business

  3. Components of the Business Assessment: The “Five C’s” • Character • Capacity • Capital • Collateral • Conditions

  4. “C #1” - Character Assess the personal reputation of the business owner: • Reputation and place in community • Residence legality • Type of dwelling (property, quality) • Family general income • Family general expenses • Support for a loan and business by family members • Psychological and emotional stability • Entrepreneur’s experience in business • Credit history (money-lenders, family, suppliers, relief fund)

  5. “C #2” - Capacity Assess the viability of the business: • Business age • Main places to make purchases and regular suppliers • Volume of sales • Main sales locations • Number and status of workers • Procedure to make products or provide services • Equipment necessary for each type of activity • Average gross income or profit size • Repayment capacity

  6. “C #3” - Capital Assess the liquid financial resources of the business: • Client financial resources: • Equity • Borrowed funds • Percentage of sales on credit • Turnover by days (cycle of business activity) • Volume of sales • Frequency of product realization • Accounts of how business is run

  7. “C #4” - Collateral Assess the assets and guarantees available to pay loan: • Title to assets • State and property reliability • Legal right to sell property • Realistic cost of property • Possibility to realize products on local market • Psychological importance of a guarantee • Guarantor’s ability to repay indebtedness • Borrower’s and guarantor’s motivation/willingness to repay indebtedness

  8. “C #5”- Conditions Conditions affecting business but being beyond businessman control. For example, business seasonality, competitiveness, inflation, access to suppliers, abnormal climatic conditions (non-characteristic for this region severe frosts or strong heat), business or marketplace construction/ destruction. In order to assess the above conditions, you must: • Fully understand the local economy • Understand government regulation affecting small businesses • Full understanding of how seasonality affects business • Evaluate competitive advantages of client’s business • See the conditions under which goods are stored • Take into account the loan conditions that apply to specific business: • Amount; • Maturity; • Seasonality; • Other;

  9. Potential Problems to Avoid During the Business Assessment • Cheating: false business etc. • Fraud • Intermediaries (“clients” who take credit for another person). • Inaccurate or incomplete information obtained from a client • Discrepancies between what Loan Officer “sees” in the market during the visit and reported financial data • Not taking into account business-cycle and business seasonality • Untimely salary disbursement in budget organizations • Inaccurate understanding of family involvement in business (i.e. when a business spends a lot from family income) • Inaccurate assessment of how loan will affect future business growth • Insufficient time and attention is attached to how a client will use loan (e.g., to buy goods, change prices; wholesale purchases; expansion through entering new markets—opening additional outlets etc.)

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