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Navigating Debt vs. Equity: Building a Strong Banking Relationship

Choosing between equity financing and loans challenges SME owners. Understand your needs and risks, role of finance in presenting your case to banks. Secure funds effectively with advised steps.

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Navigating Debt vs. Equity: Building a Strong Banking Relationship

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  1. Building “that” Banking Relationship NOV. 2012

  2. Choosing the right option: Debt v/s Equity Debt or Equity what would be the best option? • Deciding between equity financing or taking on a loan is a challenge all SME owners face. Should you go to a bank and apply for a business loan? Or should you look for an investor? 

  3. Building a sustainable relationship with banks Key steps • Building a Business Case • Knowing your need • Understanding your business risk • Role of finance manager/auditor • Presenting your case • What can the bank do? • Advisory role • Simple and transparent process • Need based product delivery

  4. Know your needs

  5. Understanding Business Risks

  6. Role of finance manager/auditor • Develop internal controls in the business. • Identify business challenges and potential opportunities for greater efficiency and results. • Identify potential financial risks eg. liquidity in the business. • Detailed analysis of financial data and its underlying reasons • Periodic Reporting to Banks.

  7. How to present your case? • Assessing the suitability of bank capital as a source of funds for the business.  • Matching business needs of capital with different products and services of the banks. • Preparing an thorough application for bank finance. • Share a detailed utilization plan of the facilities requested • Have a mechanism regularly update the bank of material changes to the business

  8. What do banks look for ? • Banks are in the business of lending and risk sharing • Banks seek information which is quantifiable, verifiable and sustainable • Different banks based on their preference and internal know-how define and operate in target markets of their choice • Lending is based on a variety of factors which the bank seeks to asses

  9. Cause for concern Re a son Absence of reliable information Inadequate accounting & financial statements High Risk Perception Lack of proper feedback/references from market Historical performance unavailable

  10. Typical approval process in banks

  11. Banks Disbursal Process

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