A bankable proposal
p. 55 · Read in the full issue
FINDING the money to get going is usually the first and probably the most important problem that faces any
body running a busi
ness, whether large or small. Putting up some money of your own if not in cash from per
sonal or family savings
then perhaps in assets such as land, a building or a vehicle is cer tainly the way to start, for it is difficult to launch any business
from nothing.
But when it comes to
getting additional
money the most com
mon sources in the islands are the commercial banks, the development banks, venture capital and aid money.
Venture capital is not easy to attract, especially in the current economic downturn, and aid money has its prob lems too. Aid money, if you can get it. may be useful in launching a business, but a business has to viable it must pay for itself and make a profit and if it requires injections of aid money to keep it going, it has no future.
There are some basic requirements in organising a loan from a bank. The most critical is often the one most frequently overlooked a detailed business plan.
Banks won’t advance money without having a clear picture of just what is going to happen to it, and they are first presented with the details that will allow them to make a sensible judgment.
Who are the owners of your business and what assets are they putting up?
What is the company structure? (for security reasons, banks want to lend to a company rather than a person, and if you haven’t already set up a company you will have to allow for the expense of a lawyer and an accountant). If you are in a partnership, there should be a legal agreement between the partners.
But what the bank will be most interested in seeing is your proposed budget. What do you estimate as your
monthly outgoings and likely income
before you can break even? What are the figures before you estimate you will begin to show a profit, and when will that be?
The bank will expect your forecasts about cash flows to be realistic, built around detailed costings and not simply optimistic guesses. It would be useful to provide them with a worst-case budget as well as one that will show them what you expect if everything goes as predicted. The bank will certainly want a sensible estimate of the money you will need as working capital and for what
Tradewinds
length of time, for it knows that most small companies fail because they haven’t enough capital to meet their bills in the early stages.
A bank needs to be approached with honesty and confidence, on the
assumption that
you want to build a good working re lationship. And when you have the loan you should evaluate your progress regularly against your busi
ness plan and know how you are going.
There is another way of getting started in the Pacific if you have a good idea, and that is to use the services of the South Pacific Project Facility (SPPF) The SPPF is working in PNG, Fiji, Vanuatu, Solomon Islands, Western Samoa, Tonga and Kiribati, providing technical and business advice to existing and potential private entrepreneurs. The facility is part of the International Finance Corporation an affiliate of the World Bank. The IFC is the largest source of multinational financing for businesses in developing countries its purpose being to create a strong private sector by helping small and medium enterprises to develop.
The South Pacific Project Facility won’t provide project finance, but what it will do is help you develop your proposal and then go looking for appro priate capital. In a nutshell, it will look at business ideas and help develop them into something bankable. If it helps you get going, you will pay a success fee.
It’s value is that it has the experts who are able to judge whether an idea is likely to be commercially viable, and then come up with the detailed plan of costings that the banks will want to see.
Or perhaps find you venture capital or some other source of funding.
The phone number of their Sydney office if you want to deal direct is (61-2)221-8544, or fax (61-2)221-7375.
Their address is GPO Box 1612, Sydney 2001.
If business people want to talk over their finance problems or ideas before they make an approach to the SPPF, or a bank or anybody else, we at the South Pacific Trade Commission (which is an arm of the South Pacific Forum) are also
available for help through our Sydney
office, phone (61-2)283 5933, or fax (61-2)283 5948.