1. business and industrial

SMEDA Business Guide Series
HOW TO OBTAIN FINANCE
FROM SME BANK
Revised on November 10, 2005
Prepared By: Policy & Planning
Small and Medium Enterprise Development
Authority
Ministry of Industries, Production & Special Initiatives
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
LAHORE
REGIONAL OFFICE
SINDH
REGIONAL OFFICE
NWFP
REGIONAL OFFICE
BALOCHISTAN
6th Floor, L.D.A Plaza,
Egerton Road
Lahore-54792
Tel: 111-111-456
Fax: (042) 6304926
helpdesk@smeda.org.pk
5th Floor, Bahria Complex 2,
M.T.Khan Road,
Karachi
Tel: (021) 111-111-456
Fax: (021) 5610572
helpdesk-khi@smeda.org.pk
Ground floor
State Life Building
The Mall, Peshawar
Tel: (091) 9213046-47
Fax: (091) 286908
helpdesk-pew@smeda.org.pk
Bungalow No. 15-A
Chaman Housing Scheme
Airport Road, Quetta.
Tel: (081) 2831702/2831623
Fax: (081) 2831922
helpdesk-qta@smeda.org.pk
TABLE OF CONTENTS
1. Introduction to SMEDA
03
2. Role of Policy & Planning
03
3. What is SME?
04
4. Problem Faced by SMEs
04
5. SME Bank’s Approach to Financing
05
6. Project Lending Scheme
05
7. Program Lending Schemes
05
8. How to Apply for a Loan to SME Bank?
06
9. General Lending Criteria
06
10.Loan Process
09
11.Some Tips for Getting Finance
10
12.Process Flow Chart
11
13.Branch Network
12
14.Annex I
16-19
15.Annex II
20-23
Obtain Finance from SME Bank
Policy & Planning
INTRODUCTION OF SMEDA
The Small and Medium Enterprise Development Authority (SMEDA) was established with the
objective to provide fresh impetus to the economy through the launch of an aggressive SME
development strategy.
Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A
few priority sectors were selected on the criterion of SME presence. In depth research was conducted
and comprehensive development plans were formulated after identification of impediments and
retardants. The all-encompassing sectoral development strategy involved overhauling of the
regulatory environment by taking into consideration other important aspects including finance,
marketing, technology and human resource development.
After successfully qualifying in the first phase of sector development SMEDA reorganised its
operations in January 2001 with the task of SME development at a broader scale and enhanced
outreachreach in terms of SMEDA’s areas of operation. Currently, SMEDA along with sectoral focus
offers a range of services to SMEs including over the counter support systems, exclusive business
development facilities, training and development and information dissemination through a wide range
of publications. SMEDA’s activities can now be classified into the three following broad areas:
1. Creating a Conducive Environment; includes collaboration with policy makers to devise
facilitating mechanisms for SMEs by removing regulatory impediments across numerous policy
areas
2. Cluster/Sector Development; comprises formulation and implementation of projects for SME
clusters/sectors in collaboration with industry/trade associations and chambers
3. Enhancing Access to Business Development Services; development and provision of services to
meet the business management, strategic and operational requirements of SMEs
SMEDA has so far successfully formulated strategies for sectors, including fruits and vegetables,
marble and granite, gems and jewellery, marine fisheries, leather and footwear, textiles, surgical
instruments, transport and dairy. Whereas the task of SME development at a broader scale still
requires more coverage and enhanced reach in terms of SMEDA’s areas of operation.
Along with the sectoral focus a broad spectrum of services are now being offered to the SMEs by
SMEDA, which are driven by factors like enhanced interaction amongst the stakeholders, need based
sectoral research, over the counter support systems, exclusive business development facilities,
training and development for SMEs and information dissemination through wide range of
publications.
ROLE OF POLICY & PLANNING DEPARTMENT
The Policy & Planning department of SMEDA is the hub of policy and regulatory research that feeds
national, provincial and local government institutions, SME associations, industrial clusters and
individual entrepreneurs with the ultimate objective of creating a conducive business environment. It
has a mandate to identify and where suitable initiate strategic projects. The Policy & Planning of
SMEDA plays a key role in providing an overall policy direction to SMEDA, under which SMEDA
provides support to SMEs. The P&P provides guidance based on field realities pertaining to SMEs in
Pakistan and other parts of the world. Information resource center of SMEDA is an integral part of
3
Obtain Finance from SME Bank
Policy & Planning
Policy & Planning department while development of Regulatory Procedures is a part of an overall
information dissemination function of the department.
In order to facilitate SMEs at the micro level Policy & Planning department has developed userfriendly systems which provide them detail description of the Laws and Regulations including the
process and steps required for compliance.
What is SME?
As defined by State Bank of Pakistan - SME (Small and Medium Enterprise) means an entity, ideally
not a public limited company, which does not employee more than 250 persons (if it is manufacturing
concern) and 50 persons (if it is trading / service concern) and also fulfills the following criteria of
either ‘a’ and ‘c’ or ‘b’ and ‘c’ as relevant:
(a) A trading / service concern with total assets at cost excluding land and buildings up to Rs 50
million.
(b) A manufacturing concern with total assets at cost excluding land and building up to Rs 100
million.
(c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs 300 million as per
latest financial statements.
In order to obtain financing from SME Bank, the enterprise must fall within the bracket of definition
of small and medium enterprise given by SME Bank.
Problems Faced By SMEs
The SME sector in Pakistan has always been taken as risky and non-bankable, even though they
have default rate that is far less than that for Large Scale Enterprises (15% for SMEs against 65% for
Large Scale Enterprise). Despite strong figures favouring SMEs, financial institutions have been shy
of providing finance to SMEs because of following reasons:












Poor record keeping by SMEs, particularly accounting information and other business
documentation.
Low productivity and their inability to improve quality of products over time.
Poor operational performance.
Problems with packaging bankable loan requests by SMEs.
Limited knowledge of financing options for SMEs.
Lengthy and cumbersome application procedures, which discourage both SMEs and Banks.
High transaction costs owing to size of transaction, vis-à-vis volume of transactions which
discourages banks.
High turn around time owing to lack of timely and quality information from SMEs.
Lack of skills in banks for identifying needs and structuring the delivery of financial assistance
to SMEs.
Lack of expertise in banks for appraising/structuring SME Projects.
Stringent collateral requirements and other banking regulations.
General risk aversion by banks.
All these factors have created a gap between lenders and SMEs. This has deprived SMEs from getting
financing for setting up, or the expansion of the business.
4
Obtain Finance from SME Bank
Policy & Planning
SME Bank Ltd. is trying to bridge the gap between the financing needs of SMEs and their access to
financing resources. SME Bank also provides Business Support Services in areas of;
1. Management
2. Product innovation and development
3. Quality control
4. Acquisition of new technology
5. Product positioning
6. Marketing
7. Development of bankable business proposals
This support is expected to assist SMEs to improve their processes, product quality, effectiveness and
marketing skills. Similar support services can also be availed from SMEDA.
SME Bank’s Approach to Financing
Any commercially viable business proposal can qualify for bank’s financing. However, in the first
instance the Bank tries to help and support enterprises,
1. Which use indigenous raw material
2. Add value
3. And are export oriented
LENDING PRODUCTS
Any commercially viable business proposal merits SME Bank’s support. It is Bank’s effort to assist
and support enterprises that use indigenous raw material, add value and are export oriented. Such
enterprises are vital to our economy since these are labor intensive and thus create employment
opportunities.
SME Bank is reaching out to small and medium entrepreneurs through:




Working Capital & Medium-Long term financing
Program Lending (Hunarmand Pakistani Schemes)
Leasing through its subsidiary
Express Loans(English, Urdu)
Project Lending Scheme:
Project Lending Scheme is for those enterprises that are commercially viable and do not fall in the
category of program lending scheme. Under this scheme working capital and medium-long term
financing facility is available for qualifying enterprises. The financing criteria and credit analysis for
this category of borrowers varies on case to case basis.
Program Lending Schemes:
The Program Lending Schemes are customized financing packages for sectors with SME
concentration. They are available for:

CNG Stations
5
Obtain Finance from SME Bank









Policy & Planning
Women Entrepreneurs
Health Development (Doctors & Dentists)
Qingqi Rickshaws
Cutlery
Surgical
Fan Manufacturers
Power Looms
Boat
Mata
Customized financing products for the following are also available :





Power Looms Up Gradation
Beaconhouse School Systems
Carpet Manufacturers
Gems & Jewellery
OEM (Original Equip't Manf's) – Autoparts
The bank adjusts repayment of loans according to the turnover of the business while assessing the
cash generation abilities of the business. Therefore, financing under the program lending scheme
though generic in nature, can have customised terms and conditions which are suitable to the
clients.
How to Apply for a Loan to SME Bank?
For obtaining financial services or assistance from the Bank, the applicant should fulfil the following
criteria or more specifically called the “General Lending Criteria”
General Lending Criteria
Borrowers
Bank’s 3 main requirements are:
1- A viable business plan
2- Adequate debt equity1 ratio
3- Acceptable securities
If you meet SME Bank’s lending criteria and have a sound business proposal that is commercially
viable, please apply for our assistance as follows:
1. Get an application form from one of our designated branches.
2. Fill it up with the required information.
3. If you need assistance in filling up the form, our staff will be there to help you.
4. After completing the form, kindly hand it over to our credit officer along with the required
documents. These documents have been listed in the application form.
1
Generally, refers to the capital invested by the owner in the business and also includes any undistributed profits or reserves
6
Obtain Finance from SME Bank
Policy & Planning
Sectors
The lending facilities are available for SMEs in the sectors of textiles, gems & jewellery, marble &
granite, cutlery, surgical, engineering vendors and any other viable/profitable enterprise.
Financing
SME Bank can provide financing within the range of Pak Rs.50,000.- to Pak Rs. 30 Million.
Loan provided by the Bank will not exceed 60% of the forced sale value of collateral. At least 40% of
the project’s/enterprise’s financing should come from the borrower in the form of equity. Up to 60 %
would be financed by SME Bank.
i.e, debt: equity ratio is 60:40
Mark Up
What a client pays to the Bank, in addition to the loan amount, is called the ‘mark-up’. This is
necessary to sustain the Bank’s activities. It is market based and depends upon the project’s
expected cash flows. It varies from business to business, but is in the range of 4% to 8% above the
GoP’s 5-year PIB rate.
Repayment
The repayment of loan is linked to the cash flows of the project, which are separately projected by the
bank. The bank’s projections are based on the business plan and the financial statements of the
client, which are provided at the time of submitting application for a loan. The repayment is
scheduled according to the cash flow of the client. It could be either on monthly basis or quarterly
basis. However, the total repayment period does not exceed 7 years with varying grace period of upto
12 months.
Collateral
Collateral forms are:



Acceptable forms of security are mortgage of property/house/building
Hypothecation of stocks/machinery/equipment
Personal guarantees
The collateral requirements are as follows:
Securities
These include


Mortgage of land, building and fixed assets having approximate forced sale value 70%
approx. of value of loan. Professional evaluator of bank’s choice assesses the forced sale
value.
Bank charge by way of hypothecation, pledge etc on moveable and other non-real estate
assets.
The bank carries out two types of mortgages
7
Obtain Finance from SME Bank
Policy & Planning
1. Registered Mortgage
SME bank has assigned some areas to be negative and carries out registered mortgage in case of
these areas. The bank registers the mortgage deed with the registrar of properties and the client has
to pay 2 % of the value of collateral. (1% stamp duty and 1% mortgage fee). Original documents of the
property are also kept with the bank.
2. Equitable Mortgage
This type of mortgage is for those clients who fall under the category of areas which are rated as A+ or
positive by the bank. The client simply signs the mortgage deed and his original documents of the
collateral are deposited with the bank as security. This type of mortgage is cheap but normally
avoided by the bank.
Assignment of Rights
According to this the borrower shall have to assign rights to Bank on his:


Insurance monies.
Receivables etc.
Guarantees
The loan guarantees accepted by the bank are:


Personal guarantees of persons having capacity to repay the finance in case of default.
Trade Body or Corporate Guarantees
The guarantors shall have to give their NIC copy, copy of registry of property and sign the guarantee
paper. The bank judges whether the guarantor has worth equal to the amount of loan or not.
8
Obtain Finance from SME Bank
Policy & Planning
The Loan Process
Step 1

The applicant has to fill a Business Proposal Form (Annex I) with different type of details
mentioned in it.
 The credit department assesses the information filled in this form. If they find the information
satisfactory, the applicant is called for a meeting.
(The process may take a week for completion)
Step 2


The credit officer visits the business sight of the client to check the business viability of the
project. The client may be asked to provide the evidence of his cash flow to prove his worth e.g.
books of accounts, stock reports etc.
The applicant fills the Loan Application Form (Annex II) and submits to the bank along with
following documents.
o
o
o
o
o
o
Business Plan
Attested copy of NIC
Property documents
Accounts
Bank statement
Any other as advised by the concerned Credit Officer


After this credit department carries out the evaluation and appraisal of the loan request.
The bank obtains legal opinion certificate from the lawyer for the clearance of the title of client’s
property and gets the property evaluated from professional evaluator of their choice.
 If all this turns out to be acceptable, the case is forwarded to the Provincial Chief for final
approval.
(This process may take a month or two.)
Step 3



If the loan is not sanctioned the bank informs the customer about the fate of his application.
Bank may or may not communicate reason for rejecting a grant of loan.
If the loan is sanctioned, then
1. In pre-disbursement stage legal documents are prepared and executed.
2. The collateral is mortgaged in bank’s favour.
3. A cross cheque is issued or account is credit or overdraft is allowed.
4. The business assets are insured i.e. stocks, machinery etc.
The total estimated expenses for the process
1. Bank’s Processing Fee Structure
Upto Rs.0.050 million
Nil
From over Rs 0.050 million to Rs. 2 million
0.5% of loan amount.
From over Rs. 2 million to 10 million
Rs.15, 000
9
Obtain Finance from SME Bank
Policy & Planning
From Rs. 10 million to 20 million
Over Rs. 10 million
Rs.20, 000
Rs.25, 000
2. Mortgage Fee
2 % of the value of finance.
3. Legal Opinion Fee
Rs.500-1,000
4. Evaluation Charges
Rs.3, 000
5. Insurance
0.5% of loan amount & 0.5% of value of collateral
Step 4
Effective Utilisation of Loan:
 If you have revolving credit facility, withdraw funds only when desired. Try to credit account with
your daily sales. It will reduce the mark up cost and reflect good operational activity at the time of
next loan review.
 If you are availing term finance, to ensure payments on time try to match your cash flows with
instalments due date. In case, you foresee delay in payment of any instalment inform your bank
upfront. This will establish your credibility.
 Don’t waste your money in any dubious transaction to make big money.
 Don’t waste money on purchase of non-productive assets.
Some Tips for Getting Finance







The borrower cannot borrow beyond 60% of the business value therefore, don’t request a loan
beyond that limit.
The value of short-term liabilities should not exceed the value of short-term assets; your accounts
should reflect the same.
Always show the real picture of the business. Don’t exaggerate since banks always find ways to
assess the real picture.
If you need consumer finance to meet your personal needs, do not apply for a commercial loan.
Don’t hide anything; be candid and honest in reporting. It will help establishing credibility.
Always operate through your bank account. A healthy turnover in the bank account will support
your claims about future business prospects.
The banks normally take 2-3 months for the processing of loan, so plan early and be patient
during the process, but do follow-up progress on your application.
10
Obtain Finance from SME Bank
Policy & Planning
Process Flow Chart
Business Proposal Form
The applicant fills business Proposal
Form.
Loan is
refused
No
Assessment of Business Proposal Form
The credit department assess
information and if found satisfactory,
calls applicant for a meeting.
This process takes a week.
Credit Officer’s Visit The credit officer visits client’s business
place to verify the information provided
by him. Submits report to credit manger.
Loan Application Form
If credit officer is satisfied with client’s
business status/viability, he is asked to
fill Loan Application Form.
Other Documents
Required
1.
2.
3.
4.
5.
Property Evaluation & Appraisal
Credit department carries out evaluation
and obtains legal opinion certificate from
lawyer. Property is evaluated from
professional
Loan is
Refused
No
Other Documents
Required
1.
2.
Provincial Chief’s Approval
If all acceptable, case is forwarded to
Provincial Chief for approval of loan
request.
3.
Pre-disbursement Stage
In this stage, legal documents are
prepared by the Bank and executed.
Collateral is mortgaged in ban’s favour.
Disbursement Stage
Loan is disbursed to borrower either
through a cross cheque or account
credited or over draft allowed. Business
assets are insured.
11
National Identity
Card Copy.
Financial
Statements/Accou
nts of past three
years.
Salary Certificate
& Bank Statement.
Last Wealth &
Income Tax return
filed.
Attested copy of
property
Original
Registry/Transfe
r letter.
Farad Milkiyat
(From
Patwari/Tehsild
ar)
Non
Encumbrance
Certificate.
(NEC)
Obtain Finance from SME Bank
Policy & Planning
Branch Network
Head Office
Box: 1587, Jang Building
40-K Fazal-ul-Haq Road
Blue Area
Islamabad-44000
Tel: 92-42-9206652-54
UAN: 111-110-011
E-mail: info@smebank.org
Website: www.smebank.org
Business Operations
LAHORE
1. Lahore Main Branch
13-L, Mini Market,
Gulberg-II.
PH# (042) 5756224, 751226
Fax# (042) 5756225
UAN# (042) 111-11-00-11
2. Ravi Branch
103, Ravi Road , Bati Wala Chowk.
PH# (042) 7705901.
3. Edwards Road Branch Alamgir Building
Ground Floor
17 Edwards Road (Mouj Darya road)
Lahore City.
PH # (042) 7221008-7220663
KARACHI
1. Karachi Main Branch
Bahria Complex-II , MT Khan Road.
PH# (021) 5610851-53,5610657
Fax# (021) 5610854
UAN# (021) 111-11-00-11
2. Gulshan Branch
Mumtaz Shopping Complex,Gulshan-e-Iqbal.
PH# (021) 4813385.
ISLAMABAD
Islamabad Branch
40-Jang Building ,Mezzanine Floor, Fazal-ul-Haq Road ,
Blue Area.
PH# (051) 9219260
12
Obtain Finance from SME Bank
Policy & Planning
Fax# (051) 9213742
FAISALABAD
Faisalabad Branch
P-341-B, Peoples Colony #1, Satyana road, Faisalabad.
PH# (041) 9220481, 9220482, 9220484
Fax# (041) 9220483
UAN# (041) 111-11-00-11.
PESHAWAR
Peshawar Branch
State Life Building , Ground Floor, 24-The Mall.
PH# (091) 9212350
Fax# (091) 285177
UNA# (091) 111-11-00-11
GUJRANWALA
Gujranwala Branch
26-27-J,Trust Plaza , G.T.Road.
PH# (0431) 9200443
(0431) 9200767
Fax# (0431) 9200243
UAN# (0431) 111-11-00-11
QUETTA
Quetta Branch
Ground Floor,Usman Complex, Hali Road .
PH# (081) 9202330,9202337
Fax# (081) 9202386
UNA# (081) 111-11-00-11
SIALKOT
Sialkot Branch
Ground Floor,Al-Amin Building, Opp. SCCI Paris Road .
PH# (052) 4266055
Fax# (052) 4265041
UAN# (052) 111-11-00-11
Recovery Offices
PUNJAB
AREA OFFICE RAWALPINDI
Walayat Plaza, Murree Road,
Opp. Daily "Assas" Office,
Murree Road,
Rawalpindi (City)
PH# (051) 4456768, 4581713
Raza Building, Railway Road,
13
Obtain Finance from SME Bank
Policy & Planning
Jehlum
PH# (0541) 92702
C.M.H Road,
Rawalakot,
PH# (058710) 42543
AREA OFFICE LAHORE
17-E. Edwards Road,
Lahore City
PH# (042) 7243389 43-Allama Iqbal Road, Garhi Shahu,
Lahore Cantt
PH# (042) 6370322
1st Floor, (Prime Bank Ltd)
Prince Fan Colony, G.T.Road
Gujrat
PH# (0433) 513242
136/2-C Satellite Town,
Sargodha
PH# (0451) 211511
AREA OFFICE MULTAN
Sharif Plaza, LQM Road,
Multan
PH# (061) 9200246, 9210181
189-Liaqat Road,
Sahiwal
PH# (0441) 220352
27-A, Stadium Road,
Opposite Farid Gate,
Bahawalpur
PH# (0621) 9255393
SINDH
AREA OFFICE KARACHI
801-802, 8th Floor, Park Avenue,
24-A, Block PECH, Shahrah-e-Faisal,
Karachi (East)
PH# (021) 4538041, 4314749
Badri Manzal, Rasal Road,
Hyderabad
PH# (0221) 9200717
Main Military Road,
14
Obtain Finance from SME Bank
Policy & Planning
Sukkur
PH# (071) 30554, 31982
H#77, Badaruddin Colony,
Near Circuit House,
Dadu
PH# (0229) 611665
NWFP
AREA OFFICE PESHAWAR
State Life Building,
10th Floor, 34- The Mall
Peshawar Cantt,
Peshawar
PH# (091) 274997
Awan Huts, Lala Rukh Colony,
Mansehra Road,
Abbottabad
PH# (0992) 9310159
BALUCHISTAN
AREA OFFICE QUETTA
Ground Floor Usman Complex,
Hali Road,
Quetta
PH# (081) 9202841
15
Obtain Finance from SME Bank
Policy & Planning
Annex I
Page 1 of 4 of Annex I
16
Obtain Finance from SME Bank
Policy & Planning
Annex I
Page 2 of 4 of Annex I
17
Obtain Finance from SME Bank
Policy & Planning
Annex I
Page 3 of 4 of Annex I
18
Obtain Finance from SME Bank
Policy & Planning
Annex I
Page 4 of 4 of Annex I
19
Obtain Finance from SME Bank
Policy & Planning
Annex II
Page 1 of 4 of Annex II
20
Obtain Finance from SME Bank
Policy & Planning
Annex II
Page 2 of 4 of Annex II
21
Obtain Finance from SME Bank
Policy & Planning
Annex II
Page 3 of 4 of Annex II
22
Obtain Finance from SME Bank
Policy & Planning
Annex II
Page 4 of 4 of Annex II
23