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Tuesday, July 04, 2006

Credit financing for SME's

Small Business Guarantee and Finance Corporation (Small Business Corporation) is a government financial institution attached to the Department of Trade and Industry that is mandated to provide credit financing and guarantees to the country’s small and medium enterprises (SMEs).

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

In November 2001, through Executive Order No. 28, Government Fund for Small and Medium Enterprises (GFSME) and SBGFC were merged, leading to the new Small Business Corporation, as it is known today .

Nature of Financial Intervention

  1. Direct lending to suppliers of domestics firms with proven track record in terms of market, financial and management stability; and
  2. The financing is transactional where the object of credit is the supplier’s sales invoice for goods and/ or services already delivered to the Anchor-Firm buyer.

Objectives

  • To provide credit access to domestic suppliers that are not eligible to secure new or additional financing from banking institutions due to insufficient collateral and/or other credit-risk considerations;
  • To help bridge the financing gap faced by SME suppliers resulting from long receivables turnaround time, especially during times of credit crunch; and
  • To ensure the continued viability of the financing program despite its direct lending mode, thereby providing sustained assistance to the domestic suppliers sector.

Strategy


  • Encourage the anchor or “big brother” system between large and SME firms through the provision of financing support that would benefit both parties in the business relationship;
  • Set up the proper criteria for the selection of anchor firm-buyers; and
  • Tie-up with the Anchor-Firm Buyer-Firm for the diligent collection of receivables of the SME domestic supplier.

What Type of Borrower May Be Financed?


  • Enterprises with asset size of not more P100.0 Million, excluding the value of land. Relatedly, the enterprise should not be a subsidiary or division of a large enterprise;
  • The enterprise is at least 60% Filipino-owned;
  • All industries except enterprises engaged in farm-level agriculture/aquaculture production, in trading of imported goods, of liquor and cigarettes, in extractive industries, and housing projects;
  • The enterprise meets the following minimum eligibility criteria:
    - Capitalization or equity of at least P500 Thousand;
    - Latest annual sales of at least P3.0 Million; and
    - Other standard financial ratios.

What Receivables of the Borrower May be Financed?


  • The receivable should be from an Anchor-Firm Buyer-Firm with the following qualifications:
    Among the top 1,000 corporations in the country in terms of asset size and/or financial performance;
  • Receivables from government corporations;
  • Receivables from industry anchor firms;
  • Its financial profile and performance fall within the standards set by SB Corporation;
  • It is not to any degree related to the borrower in terms of stockholding and/or family ties;
  • Its speed of payment does not exceed 120 days; and
  • It has not subjected the borrower to any bad debt in the past.
  • The following types of receivable are excluded:
    - Retentions, offsets or contras; or
    - Conditional sales, leasing or consumer credit agreements.

What are the Terms of Financing?

  • All receivables from the set of buyers selected and agreed upon by the borrower and Small Business Corporation shall be subject to financing. On a per approved Anchor-Firm buyer basis, the sales invoices to be financed shall not be at the discretion of the borrower;
  • Maximum financing shall be up to eighty percent (80%) of the value of the receivables, or up to 100% less interest due if the anchor firm buyer has issued a PDC
  • A credit line of not more than P2.0 Million shall be initially approved for a borrower prior to the start of financing. The credit line limit can increase to P5.0 Million after 3 paid Small Business Corporation loans and up to P8.0 Million after 2 more paid loans and if under direct collection by Small Business Corporation:
    - Up to P1.0 Million if receivable is from a government agency, and
    - Up to P1.5 Million if receivable is from a top 1,000 corporation in the construction industry or in IT software development.
  • Small Business Corporation shall have the option to implement direct collection of the proceeds of all financed sales invoices from the approved anchor-firm buyers of the borrower. Any excess collection relative to the borrower’s loan shall be credited by Small Business Corporation to the borrower’s account;
  • The borrower should agree to open a checking account in the designated collecting bank of Small Business Corporation;
  • The borrower should notify the approved anchor-firm buyer on the collection mechanism, and
  • Interest rate and other charges including processing fee for the evaluation/ processing of the loan application and penalty fee for delayed payments shall be set by Small Business Corporation.

Documentary Requirements

Upon Application of the Credit Line

  • Accomplished Business Loan Application Form with picture
  • Notarized Client Information Sheet with fully accomplished Statement of Assets and Liabilities (for each of the major owners/officers)
  • Official endorsement by applicable Small Business Corporation partner
  • In-house financial statements (not more than one year old)
  • Business registration papers
  • Location map of the project
  • Photocopy of the sales invoice or equivalent issued by a top 1,000 corporation

During the Project Visit

  • Accomplished Small Business Corporation signature card, as facilitated by the account officer
  • Copy of official receipt of the business for simple verification by the Small Business Corporation account officer
  • Original copy of proof of ownership registration of the collateral properties offered to secure the loan for simple validation against the photocopy, to be conducted by the Small Business Corporation account officer
  • Prior years in-house F/S, if business is more than one year old (prior two years F/S would suffice for long existing companies
  • Latest income tax return of the business
  • Aging of Accounts Receivable
  • Proof of historical sales transactions
  • Bank statements to serve as support to sales verification
  • Business contracts – including marketing agreements and leasehold contracts among others
  • List of suppliers and buyers with contract numbers

Upon Approval of the Credit Line

(Pro-forma documents provided by Small Business Corporation)

  • Receivable financing agreement;
  • Authorization by borrower for collection of proceeds of sales invoices by Small Business Corporation;
  • In the case of corporations, joint and several signatures of the principal stockholders;
  • Registered real estate/chattel mortgage and/or negative pledge on existing properties determined by
  • Small Business Corporation, and original copy of the proof of ownership including titles and certificates of registration, whichever is applicable;
  • Assignment of available life insurance, accident insurance or mortgage redemption insurance, and original copy of the policy and proof of latest premium payments;
  • Deed of assignment of the sales invoices proceeds or receivables.

For Each Loan Availment

  • Original copy of the sales invoice (or its equivalent) and of the corresponding purchase order
  • Post-dated check covering loan payment
  • Promissory note and disclosure statement


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