SME Lending and Business Analysis
48 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Which type of analysis focuses on examining a business's financial statements to assess its performance?

  • Financial Analysis (correct)
  • Business Plan Analysis
  • Credit Request Analysis
  • General Accounting Principles

What is typically included in a Business Plan Analysis during SME lending evaluation?

  • Analysis of community impact
  • Assessment of credit risk
  • Quantitative data about the industry
  • Long-term financial projections (correct)

Which of the following is NOT a type of Business Credit Product?

  • Commercial Mortgages
  • Equipment Loans
  • Lines of Credit
  • Personal Loans (correct)

Which aspect is part of the qualitative analysis of financial statements?

<p>Management competence and strategy (C)</p> Signup and view all the answers

What is fundamental to understanding Financial Statements in SME Lending?

<p>General Accounting Principles (A)</p> Signup and view all the answers

Which method is typically used to analyze quantitative aspects of financial statements?

<p>Trend Analysis (D)</p> Signup and view all the answers

Which section of SME lending evaluation focuses specifically on assessing the financial request made by the borrower?

<p>Credit Request Analysis (B)</p> Signup and view all the answers

What role do General Accounting Principles play in SME lending?

<p>They provide a standardized approach to financial reporting. (D)</p> Signup and view all the answers

What distinguishes a sole proprietorship from other business structures in terms of legal identity?

<p>The owner is personally liable for all business debts. (A)</p> Signup and view all the answers

Which characteristic is NOT true for a sole proprietorship?

<p>There is a need for a personal guarantee for loans. (D)</p> Signup and view all the answers

What is the procedure to legally operate a sole proprietorship in Malaysia?

<p>Register with the Companies Commission of Malaysia. (D)</p> Signup and view all the answers

In a sole proprietorship, what happens to the business's profits and losses?

<p>They belong to the owner alone. (C)</p> Signup and view all the answers

What factor influences the financing requirements for a business?

<p>The competitive position of the business. (A)</p> Signup and view all the answers

Which statement about creditors and sole proprietorships is correct?

<p>Creditors can claim personal assets of the owner. (D)</p> Signup and view all the answers

How often must a sole proprietorship renew its Certificate of Registration in Malaysia?

<p>Every year. (A)</p> Signup and view all the answers

What legal requirement is NOT necessary for a sole proprietorship in terms of financial documentation?

<p>Annual audit. (C)</p> Signup and view all the answers

What is a requirement for a guarantee in the context of lending to a sole proprietorship?

<p>It must be obtained from a third party. (D)</p> Signup and view all the answers

Which document can support the credit evaluation of a sole proprietorship?

<p>Personal income tax return of the sole proprietor (C)</p> Signup and view all the answers

What type of business is likely to have more current assets than fixed assets?

<p>Trading and distribution (A)</p> Signup and view all the answers

What is a characteristic of a partnership under the Partnership Act 1961?

<p>Profits and losses are shared equally among the partners. (B)</p> Signup and view all the answers

Which of the following industries generally requires higher capital investment in long-term fixed assets?

<p>Manufacturing (B)</p> Signup and view all the answers

Why is shareholders' equity financing considered the most expensive form of capital?

<p>It requires investors to participate in unlimited growth. (B)</p> Signup and view all the answers

What is the maximum number of partners allowed in a non-professional partnership under the Partnership Act?

<p>20 partners (C)</p> Signup and view all the answers

What is a primary benefit of housing cooperatives compared to major financial institutions?

<p>They offer reasonable financing options with softer repayment terms. (B)</p> Signup and view all the answers

What does joint liability in a partnership imply?

<p>All partners are equally responsible for any unpaid debts incurred by the firm. (B)</p> Signup and view all the answers

Which authority does NOT supervise cooperative societies in Malaysia?

<p>Ministry of Education (C)</p> Signup and view all the answers

What is the primary role of trade creditors in business financing?

<p>They extend credit terms for short-term financing. (D)</p> Signup and view all the answers

What happens if a partnership exceeds the maximum number of partners allowed?

<p>It is required to be incorporated as a Limited Liability Company. (C)</p> Signup and view all the answers

What does tenor matching refer to in business financing?

<p>Matching the duration of assets with the duration of their financing. (B)</p> Signup and view all the answers

Which statement about Clubs and Societies is true?

<p>They are required to be registered with the Registrar of Societies. (A)</p> Signup and view all the answers

Under the Partnership Act 1961, who has the ability to bind the partnership?

<p>Any partner acts as an implied agent of the partnership. (C)</p> Signup and view all the answers

What must all borrowings made by Clubs and Societies be supported by?

<p>A committee resolution that outlines the borrowing powers. (A)</p> Signup and view all the answers

Which source of financing typically has a lower risk tolerance compared to shareholders?

<p>Banks (D)</p> Signup and view all the answers

Which statement about partnerships is typically true?

<p>Profits and losses may be shared in any agreed proportion unless stated otherwise. (B)</p> Signup and view all the answers

In the case of debt recovery from Clubs or Societies, who can legal proceedings be initiated against?

<p>Committee or principal office bearers (A)</p> Signup and view all the answers

Which of the following is NOT considered a current asset?

<p>Buildings (C)</p> Signup and view all the answers

What implicit cost is associated with supplier credit terms?

<p>Potential for late payment penalties (D)</p> Signup and view all the answers

Where must the land and buildings acquired by Clubs and Societies be registered?

<p>In the name of the committee members such as the president or treasurer (B)</p> Signup and view all the answers

Which of the following correctly describes the liability of club members?

<p>Liability is limited to the amount of their subscriptions. (A)</p> Signup and view all the answers

Which entity is NOT eligible to make loans to its members in a housing cooperative?

<p>A club with no legal status (D)</p> Signup and view all the answers

What type of financing is typically required for long-term assets or capital investment?

<p>Long-term funds such as equity financing and long-term bank loans (D)</p> Signup and view all the answers

In which scenario might a lender require shareholders to commit additional capital before providing a loan?

<p>When business risk is perceived to be high (D)</p> Signup and view all the answers

Which type of financing is structured to address mismatches between progress receipts and payments in construction?

<p>Bridging finance (D)</p> Signup and view all the answers

What is a primary challenge faced by lenders in a competitive banking environment?

<p>Interest margin compression (C)</p> Signup and view all the answers

Which factor influences the pricing of loans and credit facilities to borrowers?

<p>Borrower's credit risk profile (A)</p> Signup and view all the answers

What type of income is essential for lenders to compensate for reductions in interest income?

<p>Risk-free ancillary income (C)</p> Signup and view all the answers

What is commonly provided to meet short-term operational asset needs?

<p>Supplier's credit (A)</p> Signup and view all the answers

How are borrowers with lower credit ratings likely affected in terms of loan pricing?

<p>They incur higher loan pricing (B)</p> Signup and view all the answers

Flashcards

SME Lending

The process of assessing the financial health and creditworthiness of a small or medium-sized enterprise (SME) to determine if they qualify for a loan.

Types of Business Credit Borrowers

A business seeking a loan, including sole proprietorships, partnerships, and corporations.

Types of Business Credit Products

Different loan products offered to businesses, ranging from traditional loans to revolving credit lines, with varying interest rates and terms.

Pricing Strategy

The process of setting interest rates and fees for different loan products, factoring in factors like risk, market competition, and borrower's creditworthiness.

Signup and view all the flashcards

Financial Analysis

The thorough examination of an SME's financial information, including balance sheets, income statements, and cash flow statements, to assess its financial performance and stability.

Signup and view all the flashcards

Business Plan Analysis

A formal document outlining an SME's business goals, strategies, and financial projections for the future, used to showcase their viability and potential for success to lenders.

Signup and view all the flashcards

Credit Request Analysis

Analyzing the SME's credit history, including past loan repayments, credit scores, and any previous defaults, to determine their overall creditworthiness.

Signup and view all the flashcards

Qualitative Aspects of Financial Statements

Evaluating the SME's characteristics not reflected in financial statements, such as management quality, industry prospects, and competitive landscape.

Signup and view all the flashcards

What is a Sole Proprietorship?

A sole proprietorship is a business structure where the owner and the business are considered the same legal entity. This means the owner is personally responsible for all the business's debts.

Signup and view all the flashcards

Liability in Sole Proprietorship

In a sole proprietorship, the owner has complete control and is personally liable for all the company's debts. This means they could lose personal assets if the business fails.

Signup and view all the flashcards

Setting Up a Sole Proprietorship

Sole proprietorships are simple to set up, requiring minimal legal paperwork and often operate with limited capital.

Signup and view all the flashcards

Profit and Loss in Sole Proprietorship

The owner of a sole proprietorship receives all the profits but is also responsible for all losses. There's no separation between the business and its owner.

Signup and view all the flashcards

Financial Reporting in Sole Proprietorship

A sole proprietorship generally doesn't require regular audits or filing of financial statements with regulatory bodies.

Signup and view all the flashcards

Loans and Sole Proprietorship

When a sole proprietor applies for a loan, they can do so in their personal name or in the business name. However, they remain personally liable for the debt regardless.

Signup and view all the flashcards

Personal Guarantee in Sole Proprietorship

Lenders generally don't need to request a personal guarantee from the owner of a sole proprietorship because they are already personally liable for the business's debts.

Signup and view all the flashcards

Lender's Perspective on Sole Proprietorship

When lending to a sole proprietorship, the lender needs to understand the owner's personal financial situation and their ability to repay the loan. This is because the owner's personal assets are at risk.

Signup and view all the flashcards

Capital Investment Requirements

The amount of money a company needs to operate and invest in its business.

Signup and view all the flashcards

Current Assets

A company's assets, such as raw materials, finished products, and receivables, that are used in its day-to-day operations and are expected to be converted into cash within a year.

Signup and view all the flashcards

Fixed Assets

A company's assets, such as buildings, machinery, and computers, that are expected to be used for more than a year.

Signup and view all the flashcards

Shareholders' Equity Financing

The money raised through issuing shares or using retained earnings.

Signup and view all the flashcards

Trade Creditors

Credit extended by suppliers to pay for goods and services.

Signup and view all the flashcards

Bank Borrowings

Money borrowed from banks.

Signup and view all the flashcards

Cost of Trade Credit

The cost associated with using trade credit, usually an implicit cost.

Signup and view all the flashcards

Tenor Matching

Matching the maturity of assets with the maturity of the debt used to finance them.

Signup and view all the flashcards

Clubs and Societies

Unincorporated bodies with no legal status of their own, unable to borrow or own property directly.

Signup and view all the flashcards

Registered Societies

These entities must be registered with the Registrar of Societies, allowing them to sue and be sued in the name of an office holder.

Signup and view all the flashcards

Unregistered Clubs

Clubs do not need registration and member liabilities are limited to their subscriptions.

Signup and view all the flashcards

Committee Management

Clubs and Societies are managed by committees, which are elected by the members and cannot act outside their assigned authority.

Signup and view all the flashcards

Borrowings by Clubs and Societies

Borrowing for land and buildings must be done in the individual names of committee members, requiring a resolution passed by the committee, clearly outlining the borrowing power.

Signup and view all the flashcards

Property Registration

Land and buildings acquired by clubs and societies can be registered in the name of a trustee or committee member, subject to authorized charges and signatures.

Signup and view all the flashcards

Debt Recovery

Legal actions to recover debts must be taken against the committee or principal office bearer, as they are not personally liable.

Signup and view all the flashcards

Office Bearer's Liability

Unlike a guarantor, office bearers are not personally liable for the debts of the society.

Signup and view all the flashcards

What is a Partnership?

A type of business structure where two or more people agree to share profits and losses from a joint venture.

Signup and view all the flashcards

What is Unlimited Liability?

Partners are personally liable for all debts incurred by the partnership, even if they were not directly involved in the debt causing action.

Signup and view all the flashcards

No Legal Distinction between Partnership and Partners

A partnership is not a separate legal entity from its partners. This means the partners are directly responsible for the partnership's actions and debts.

Signup and view all the flashcards

How are Profits and Losses Shared in a Partnership?

Profits and losses generated by the partnership are shared equally among all partners unless a different agreement is made.

Signup and view all the flashcards

What is Implied Agency in a Partnership?

Partners have the authority to act on behalf of the partnership, and their actions bind all partners.

Signup and view all the flashcards

What is the Legal Requirement for Registering a Partnership?

A partnership must be registered with the Companies Commission of Malaysia (CCM) under the Business Registration Act 1956.

Signup and view all the flashcards

What is the Requirement for Annual Renewal of a Partnership?

A partnership firm must be registered and renewed annually with the Companies Commission of Malaysia (CCM).

Signup and view all the flashcards

What is the Maximum Number of Partners in a Partnership?

The maximum number of partners in a partnership is limited to 20 unless it is a professional firm, where the limit is 50.

Signup and view all the flashcards

Bridging Finance

Financing provided to bridge a temporary gap between the receipt of progress payments and the need to pay development or construction costs.

Signup and view all the flashcards

Loan Pricing

The process of setting the interest rate on a loan, factoring in risk, costs, and competition.

Signup and view all the flashcards

Ancillary Income

Bank fees or revenue generated beyond the interest income, such as fees for bill collection or foreign exchange transactions.

Signup and view all the flashcards

Credit Risk Profile

A borrower's creditworthiness, assessed by a bank's internal system, which influences the interest rate they receive.

Signup and view all the flashcards

Long-Term Loan

A loan structure where the borrower repays the principal gradually over a period of time, typically longer than a year.

Signup and view all the flashcards

Short-Term Loan

A loan structure for financing short-term operational needs, often with a repayment term less than a year.

Signup and view all the flashcards

Suppliers' Credit

Financial resources provided by suppliers to a business, allowing them to purchase goods or services without immediate payment.

Signup and view all the flashcards

Transactional Working Capital Financing

A type of financing that covers temporary working capital needs, often used for short-term operational expenses.

Signup and view all the flashcards

Study Notes

Module Authors

  • Jasman Tuyon, PhD
  • Rapheedah Musneh, PhD
  • Siti Julea Supar
  • Nurziya Muzzawer
  • Faculty of Business and Management
  • Universiti Teknologi MARA, Sabah Branch, Kota Kinabalu Campus

Chapter Outline

  • Small and Medium Enterprises (SME) Lending
    • Introduction to SME Lending
    • Types of Business Credit Borrowers
    • Types of Business Credit Products and Pricing Strategy
  • Evaluation of SME Lending Applications
    • Business Analysis
      • Credit Request Analysis
      • Business Plan Analysis
    • Financial Analysis
      • General Accounting Principles and Policies
      • Understanding Financial Statements
      • Quantitative Analysis of Financial Statements
      • Qualitative Aspects of Financial Statement

Learning Objectives

  • Recognize various legal entities' characteristics and borrowing capacity
  • Identify various business financing needs of borrowers
  • Understand various credit facilities characteristics and pricing
  • Perform credit request analysis
  • Perform business analysis in connection with the 5Cs and the credit report
  • Perform financial analysis in connection with the 5Cs and the credit report

3.1 Small and Medium Enterprises (SME) Lending

  • 3.1.1 Introduction to SME Lending
  • 3.1.2 Types of Business Credit Borrowers
    • Sole Proprietorship
    • Partnership
    • Limited Liability Partnership (LLP)
    • Limited Liability Companies
    • Cooperative Societies
    • Clubs and Societies
    • Government Organizations
  • 3.1.3 Types of Business Credit Products and Pricing Strategy
    • Current Assets Financing
    • Capital Investment Cycle Financing
    • Fixed Assets Financing
    • Construction & Property Based Financing
    • Transactional Financing
    • Seasonal Financing

3.2 Evaluation of SME Lending Applications

  • 3.2.1 Business Analysis
    • 3.2.1.1 Credit Request Analysis
    • 3.2.1.2 Business Plan Analysis
  • 3.2.2 Financial Analysis
    • 3.2.2.1 General Accounting Principles and Policies
    • 3.2.2.2 Understanding Financial Statements
    • 3.2.2.3 Quantitative Analysis of Financial Statements
    • 3.2.2.4 Qualitative Aspects of Financial Statement

Business Borrower

  • (a) SOLE PROPRIETORSHIP

    • Simple form of business set up
    • Owner is personally liable for business debts
    • No legal distinction between business and owner
    • Need to register with CCM (Companies Commission of Malaysia)
    • Certificate of registration renewed annually
    • Characteristics include: owned by a single owner, business and owner are the same legal entity, small capital, limited expansion capacity, business and owner liabilities are the same, no regulatory requirement for audit and filing of account at CCM

  • (b) PARTNERSHIP

    • Association of two or more persons
    • Profits and losses shared equally
    • Unlimited liability unless otherwise agreed
    • No regulatory requirement for audit or filing of financial statements
    • Partnership agreement/Deed outlines details of capital, profits, and salaries/funds. (Absence of the agreement will result in the use of the Partnership Act 1961)

  • (c) LIMITED LIABILITY PARTNERSHIP (LLP)

    • Hybrid of partnership and company
    • Limited liability protection for partners
    • Unlimited capacity to hold property
    • Incoming/outgoing partners do not dissolve the LLP
    • No need for audit or filing requirement

  • (d) LIMITED LIABILITY COMPANY (LLC)

    • Separate legal entity from its owners (shareholders)
    • Shareholders have limited liability
    • Can sue or be sued, enter contracts, terminate contracts
    • Shares can be transferred publicly
    • Limited liability company is a separate legal entity from its owners. Shareholders can raise capital through cash calls, share swaps, bonus issues, and convertible bonds.

  • Other Borrower (i) Cooperative Societies

  • Other Borrower (ii) Clubs and Societies

  • Other Borrower(iii) Government Organization

  • 3.1.3 Types of Business Credit Products and Pricing Strategies

    • Working Capital Financing
      • Identification of Net Working Capital Needs
        • Calculation of Projected Stock, Debtors, Creditors
      • Types of Facilities for Working Capital Financing
        • Overdraft
        • Trade Facilities
        • Non-cash Facilities
      • Key Credit Considerations for Working Capital Financing -Generating sufficient revenue to cover operating expenses

  • Capital Expenditure Financing

    • Identification of Capital Expenditure Financing Needs
    • Types of Facilities for Capital Expenditure Financing
      • Term Loans
      • Hire Purchases
      • Leasing

  • Construction and Property-Based Financing

    • Identification of Bridging Financing Needs
    • Type of Facilities for Bridging Financing
      • Revolving Construction Loan
      • Non-revolving Construction Loan
      • Non-Financing Facilities
    • Key Credit Considerations for Bridging Financing
    • Developer Financing
    • Main Contractor Financing
    • Subcontractor Financing

  • Transactional Financing

    • Sourcing and supplying to buyers
    • Manufacturing customized products
    • Engineering/ construction contracts

  • Seasonal Financing

    • Temporary working capital
    • Meets increased transactional requirements during the peak sales periods

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

Business Credit Analysis Chapter 3 PDF

Description

This quiz covers key concepts related to SME lending and business analysis, including financial statement evaluation, business credit products, and the legal structure of sole proprietorships. Test your knowledge on quantitative and qualitative analysis methods and the importance of general accounting principles in lending scenarios.

More Like This

Use Quizgecko on...
Browser
Open
Browser
Browser