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Financing as it relates to making SMEs Globally Competitive Presented by: Benel P. Lagua President and COO Small Business Corporation Financing – Making SMEs Globally Competitive Finance and the Small Business World The SME Finance Life Cycle The SULONG Program

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financing as it relates to making smes globally competitive

Financing as it relates to making SMEs Globally Competitive

Presented by:

Benel P. Lagua

President and COO

Small Business Corporation

financing making smes globally competitive
Financing – Making SMEs Globally Competitive
  • Finance and the Small Business World
  • The SME Finance Life Cycle
  • The SULONG Program
  • Small Business Corporation
  • Types of SMEs – SBC Credit Delivery System
  • Difference Between SBC Financing And That Of The Banks
  • Conclusion; How to Get in Touch
small business world
Small Business World

We aim to

fill in the gaps

in SME financing

role of finance
Role of Finance
  • To channel funds from those who wish to save to those who need to borrow
  • Link the present and the future, allow savers to convert current income into future saving
  • Finance is like any other market, matching demand and supply for loanable or investable funds
  • Pooling of resources/savings
follow the money
Follow the Money
  • Empirical studies confirm the strong link between financial development and economic growth
  • Without a financial revolution, the industrial revolution might not have taken place
  • To be competitive, SMEs must find the appropriate financing to fuel growth
the sme finance life cycle8
The SME Finance Life Cycle

Maturity

Beyond 5 years

Growth

Formal

Finance

Mezzanine

Venture

Capital

Up to 5th year

Introduction

Personal

Finance

Start-up

At least first 2 years

slide9
According to Dun and Bradstreet reports,

“Businesses with fewer than 20 employees have only a 37% chance of surviving four years (of business) and only a 9% chance of surviving 10 years.”

According to a Bradley University study,

“The failure rate for new businesses seem to be around 70% to 80% in the first year and only about half of those who survive the first year will remain in business the next five years.”

slide11

Perspective of Stakeholders

Banks impose very cumbersome

procedures; collateral-minded ; poor

service to SMEs

SMEs

slide12

Perspective of Stakeholders

SMEs are risky;

Have inferior collateral;

low capitalization

SMEs

BANKS

background of sulong
Background of SULONG

In support of the National SME Development Plan, the government financial institutions (GFIs) collaborated to design a uniform lending program. Under the SME Unified Lending Opportunities for National Growth or SULONG, the participating GFIs shall apply simplified and standardized lending procedures and guidelines, e.g., loan purpose, fee structures, interest rates, application forms and other lending parameters for evaluating the loan applications (P5 Million and below).

background of sulong15
Background of SULONG

The SULONG scheme is in addition to the existing financial services of the participating GFIs:

  • DBP
  • Land Bank
  • NLSF
  • PHILEXIM
  • QUEDANCOR
  • Small Business Corporation
  • SSS
background of sulong16
Background of SULONG

Commercial banks, thrift banks and rural banks engaged in lending to SMEs may also avail of SULONG allocated funds through the participating GFIs’ wholesale lending facilities under the SULONG program.

sulong awarding ceremony p27 billion in 2004
SULONG Awarding CeremonyP27 Billion in 2004

P82.6 B from 2002 to January 2005

credit champion for smes
CREDIT CHAMPION

FOR SMEs

Small Business Guarantee and Finance Corp.

small business corporation
Small Business Corporation

Republic Act Nos. 6977 and 8289

MAGNA CARTA FOR SMALL AND MEDIUM ENTERPRISES

The Small Business Guarantee and Finance Corporation

(Small Business Corporation) was created in 1991 by virtue of R.A. 6977 or the Magna Carta for SMEs, later amended by R.A. 8289 in May 1997.

Banks

SMEs

vision statement
Vision Statement

“A globally competitive and domestically viable SME sector empowered to access financing and business technologies at terms advantageous to their growth.”

accomplishments in 2004
Accomplishments in 2004
  • P3.3 Billion in SME financing in 2004
  • 37% increase from 2003’s P2.4 Billion
  • 2,422 SMEs assisted in various industry sectors in 2004
accomplishments in 200424
Accomplishments in 2004
  • Targeted loan approvals for the year is P3.0 Billion. Actual loan performance for 2004 is P3.3 Billion, 110% of the target.
  • 2,422 SMEs assisted in various industry sectors in 2004.
  • Target for 2005 is P3.6 Billion
slide25

WHOLESALE ACCOUNTS

Philippines 2002 to 2004

slide26

Total4,406.266 M

WHOLESALE ACCOUNTS BY PROVINCE

Year Conduit Banks Amount (Pesos)

2002 25 810.500 M

200339 1,284.144 M

200455 2,311.622 M

slide27

RETAIL ACCOUNTS

Philippines 2002 to 2004

slide28

RETAIL ACCOUNTS BY PROVINCE

Year Borrowers Amount (Pesos)

2002 114 262.242 M

2003387 766.026 M

2004207 654.224 M

Total 708 1,682.492 M

slide30

Already Bankable SMEs

1

Substantial business track record and/or size

2

Established management systems

3

Significant credit track record

4

Sufficient collateral

slide31

Near Bankable SMEs

1

Substantial business track record and/or size

2

Established management systems

3

Absence of or limited credit track record

4

Absence of or inferior collateral

slide32

Viable But Pre-Bankable SMEs

1

Limited business track record and/or size

2

Limited management systems

3

Absence of credit track record or, in the case of recovering SMEs– negative track record

4

Absence of or inferior collateral

slide33

SBC

Credit Delivery Intervention

slide34

For Already Bankable SMEs

Wholesale funds

• Helps SMEs get lower interest rates

• Helps SMEs get longer repayment terms

• Helps SMEs in the province access credit

(liquidity for the provincial financing system)

slide35

For Near Bankable SMEs

Credit Guarantees

• Helps SMEs enter into the formal financing system

• Helps banks open-up and learn more on how to finance near bankable SMEs

slide36

For Viable But Pre-Bankable SMEs

Direct Loans

• Helps SMEs access credit at better rates relative to informal sources

• Trains SMEs in formal financing and in starting a credit track record

• Helps an SME grow in its industry and to a respectable size over time with continuous financing

slide37

Non-

Bankable

SMEs

Near

Bankable

SMEs

Bankable

SMEs

The SBC Credit

Delivery Intervention

Higher Competitiveness

Direct

Lending

Credit

Guarantees

Wholesale

Lending

slide38

SBC

Direct Lending

Programs

direct lending facilities of sb corporation
DIRECT LENDING FACILITIES of SB Corporation

Short-Term Facilities

(one year or less)

Loan Purpose: Transactional Working Capital

1. SME-FRIEND – short-term financing of export orders

2. SME-FIRST – short-term financing of receivables (eventually POs) of suppliers of top 1,000 corps. or industry anchor firms

direct lending facilities of sb corporation40
DIRECT LENDING FACILITIES of SB Corporation

Medium-Term Facilities

(above one year up to five years)

Loan purpose: Fixed Asset Acquisition (largely)

  • SME-GUIDE – medium-term financing of SME projects endorsed by DTI-Pos
  • SME-FORCE – medium-term financing of start-up or expanding franchisees
slide41

Must be an SME (not less than P500 Thousand and not more than P100.0 Million asset size excluding the value of land).

Must be Filipino-owned (at least 60% in case of corporations).

Not engaged in farm-level agri/aqua production, in trading of imported goods and retail trading, in vice generating activities, or in housing.

Minimum Borrower Qualifications:

slide42

Must have at least one year profitable track record;

Start-ups and/or less than one year business track experience can be considered only under SME-FORCE and SME-FIRST

Minimum Borrower Qualifications:

factors to loan absorption capacity of an enterprise
Factors to Loan-Absorption Capacity of an Enterprise
  • Market expansion potential
  • Feasibility of production expansion
  • Profit margin prior to financing
  • Debt-equity ratio
  • Permanent vs. seasonal working capital
  • Maturity matching
  • Leverage, break-even
slide46
Small Business Corporation is committed to work for a more empowered Philippine SME Community.

Small Business Corporation

is committed to work for

a more empowered

Philippine SME Community.

small business corporation48
Small Business Corporation

Head Office

17th and 18th Floors

139 Corporate Center

139 Valero St., Salcedo Village

Makati City

Telephone Nos.: 751 1888

Fax: 81305726

E-mail: sbcorporation@sbgfc.org.ph

Website: www.sbgfc.org.ph

Cebu Office

Tel.: (032) 253-755

Fax: (032) 253-4840

Email: sbgfcvao@info.com.ph

slide49
Davao Office

Tel.: (082) 221-1488

Fax: (082) 221-0858

Email: sbgfc-mao@skyinet.net

La Union Office

Tel.: (072) 242-7647

Email: sbgfc@info.com.ph

Naga Office

Tel.: (054) 811-6694

Fax: (054) 811-2858

Email: sbcbicol@mozcom.com

slide50

Thank you!

Benel P. Lagua

blagua@sbgfc.org.ph