One topic that never grows old is looking at what banks look for when reviewing term loan applications. A lot of SMEs still struggle with this. This presentation should help the interested parties frame their applications better.

1. Applying for A Term Loan
What The Banks Will Be Looking
For

2.  Why Appraise a Project?
 Contents of Project Proposals.
 The Appraisal Process.
 What is the Project?
 Project Operations.
 Is there a Real Market?
 Financial Evaluation.
 Environmental and Other issues.

3.  The borrower is inviting the bank to invest in his/her project.
 An investment decision should only be made on the basis of careful
analytical review.

4.  Banks invest on the basis of risk return trade-off, whereby the
higher the risk the higher the required return (interest) from a
project.

5.  Appraising a project proposal is essentially an assessment of its
inherent risk.
 The bank must collect information to adequately assess potential
risk in a proposed project.
 The risk is usually NOT obvious!!

6. • What is the project?
• Who are behind the project?
• Is there a real market?
• What are the operational issues of the project?
• Can the project repay the loan and provide reasonable return to the
sponsors?
• What are the environmental and other issues affecting the project?

7. Who are behind
the project?
What is the
project?
Is there a
Real market?
Is technology
Available?
What are the
financial
returns?

8.  Sponsors
• Do they have proven ability in managing a project of this size?
• Do they have the technical ability to keep business running?
• Do they have the necessary skills to implement
required financial, costing and administrative
controls?
• Are they prepared to put some of their own funds
into the project?

9.  The Company
• Name, nature and evolution, place of incorporation, address and
place of business.
• Capitalization and shareholding and control.
• Memorandum and Articles of Association.
• Associated or other related parties.
• Previous exposure of the company and sponsors to bank loans.

10.  Profiles of Management
• Qualifications and Experience.
• Responsibilities.
• Recruitment and Promotions.

11.  Organisation
• Organisation Chart
• Communication Channels
• Management Reporting
 Staffing
• Labour/union issues
• Wage structure, benefits, etc

12.  Accounting and Internal Control System
 Past Financial Performance review
- Profitability, Liquidity, Solvency and Other Financial
Characteristics.
- Auditors and Other Advisors
- Cash flow analysis

13.  What will the project do?
 What equipment will be needed?
 Can the technology required be supported locally?
 What raw materials are required?

14.  Machinery
• List of requirements.
• Availability.
• Basis of selection – (price, quality, support, spares).
• Capacity.

15.  Compatibility of new equipment and future expansion.
 Location and reason for choice:
- Availability of expansion space.
- Site development requirements
- Access to transport and other facilities.
- Utilities – water, power, telephone, sewerage.
 Implementation Program/Timetable
 Technical assistance-commissioning, professionals
required,etc.

16.  Project operations and facilities
 Alternative production processes
 Justification of selected processes
 Legal aspects – licenses, permits, etc
 Raw materials and sources
 Quality controls

17.  Raw material requirements
 Volumes, product mix, sizes, packaging
 Labour requirements and sources
 Training requirements

18.  Is there a demonstrable market?
 Is the market growing?
 How will the project break into the market?
 What sales prices and volumes are achievable?
 What is the competition doing?

19.  Customers
• Characteristic – age, social class, etc.
• Benefits derived – economy, durability, convenience, safety, etc.
• Market size and projected market share
 Competition
• Location, relative size, barriers to entry
• Advantages/disadvantages

20.  Pricing Strategy
• How are prices calculated?
• Are they fixed or variable?
• What is the discount policy and credit terms?
 Selling Strategy
• Sales representatives
• Recruitment and appointments

21.  Distribution chain
• Agents, distributors, wholesalers
• Means of transport
• Anticipated problems
 Advertising and Promotion
• Media to be used
• Promotion campaign and methods to be adopted

22.  Key Questions
• How profitable will the project be?
• What are the working capital requirements?
• How quickly can the loan be repaid?
• Sensitivity Analysis effects of different commercial environments

23.  Pre operation costs
 Working capital
 Other capital expenditure
 Sources of funding – debt and equity
 Reasonableness of assumptions

24.  Pollution and ways to cope with it
 Health of employees
 Environmental degradation
 Government regulations and legislation
 Social responsibility

25. THANK YOU