ON Thursday December 20, 2012, I watched a business programme entitled business enterprise presented by Chisenga Mumba on ZNBC TV one.
On this programme, Small and Medium Enterprises(SMEs) expert Windu Matoka from Zambia Development Agency (ZDA) was featured and one thing that drew my attention was a problem which was posed by one of the viewers from Southern Province, whose loan application to one of the banks was rejected.
The rejection was due to the fact that the application lacked the merit of financial statements.
However, today in our weekly column, I just want to supplement the efforts of Mr Matoka who elaborated in clear terms of the requirements of the financial lending institutions, especially the registered banks in the country when it comes to giving out funds to SMEs when applying for loans.
No matter how near the liquid the collateral may be, the bank will always want to appraise the loan application in terms of the capability of paying back the loan.
The bank will do this through appraising the performance, the profitability and the liquidity of the business.
For the bank to do this, they will always request from the business the financial statements and spread sheets such as income statement, cash flows spreadsheets, balance sheets and these procedures can only be undertaken by professionals like accountants.
It is important at this juncture to re-emphasise the point Mr Matoka talked about on keeping of records in a business.
On previous topics, to those who have followed this column will concur with me that, I have pointed out for the need to keep preliminary records in order to facilitate the financial records for stakeholders not only the banks but also the government.
Preliminary records called source documents in a SMEs are very important because they form a basis on which financial records are mounted. These source documents are mostly referred to as source accounting documents.
It is advisable for any business to base its financial records on source accounting documents.
A business must ensure that each time cash is going outside the business, whether by cash or by cheque,such a payment should be explained on a payment voucher.
Where a payment is going out by way of a cheque,a cheque tab should be filled explaining the reason of a payment.
Deposits slips or receipts or both must be maintained to explain where the money is coming from.
A sales invoice book which keeps the record of the clients who have been provided with goods or services on credit is also maintained as a source document because this book is a basis on which a journal book called sales day book is mounted.
Purchase invoices are also kept to keep track of where the goods or services obtained on credit are coming from.
The purchase invoices form a base on which a purchases journal is mounted.
Other accounting source documents maintained should be in form of credit and debit notes to cater for goods received and returned respectively.
The source documents in summary should be as follows, payment vouchers, cheque tabs,diposit slips,receipts,sale invoices, purchase invoices, credit note, debit notes so on and so forth.
The proper keeping of source records in a business will enable a hired consultant, prepare financial records which in turn can be presented to the bank as proper financial records reflecting the true picture of the economic performance of a business in question.
As earlier alluded to, banks will not be moved by the liquidity of the collateral, but will also want to know how a business will be able to pay back the loan.
For it to make an informed decisions, it will want to look at the performance of the business through the incomes statement ,the liquidity of the business through the cash flow projections and also the worthy of a business through the balance sheet.
The profitability of the business will also be observed the through an income statement presented.
The bank is more than willing enough to lend money to SMEs but it also shoulders the responsibilities of safeguarding the money for depositors.
And for this reason it takes precautions by ensuring that all necessary steps are taken care off when giving out loans to SMEs. FOR COMMENTS AND QUESTIONS CONTACT 0979212235 or email.