A Bankers' Acceptance is a bill drawn by you on the bank for periods of between 30 and 365 days. Once we accepted the bill, an amount equal to its face value, with less finance charges, is immediately paid into your account. The full amount of the bill is payable to us on the maturity date.

The credit criteria for this type of finance are more stringent than for most other types of loans. The facility will only be considered for bigger businesses with substantial capital and strong profit records for the past three years.

Risk types

Business risk covers three areas:

 

  • Management risk
  • Environmental risk
  • Financial risk

Management risk

This covers the skills, commitment and abilities of the owners and management of your business. To assess risk, we need to know the following:

  • Are you in the full-time employment of the business? Small businesses run by their owners are usually more successful.
  • If the business is a franchise, do the franchisors offer you training? The success rate of franchises is high.
  • Do you have the necessary technical, financial and marketing skills to run your business? If you do not have these skills, do you have the support of people who do? A CV with details of your business experience could help.
  • What is the net value of your personal assets as a percentage of the amount of the loan you are applying for?
  • What is the minimum amount of drawings (i.e. your salary) from the business that you will need? What is the total amount of any loans that you have with financial institutions?
  • How old are you?
  • Do you have a succession plan for your business in the event of your retirement or death?
  • Do you have enough personal insurance to cover your debt?
  • Have you insured your business?

Environmental risk

This refers mostly to the industry in which you plan to set up your business and your customers. To assess risk, we will need to know the following:

  • Is it a low, medium or high risk industry?
  • Who are your main competitors?
  • How much competition is there?
  • Are there any special factors that will attract customers to buy from you rather than from your competitors?
  • How many main suppliers will you have and will they let you buy goods on credit?
  • Does anyone else have similar products that could affect your business?
  • How easy is it for new competitors to enter the market?
  • Is your business seasonal?
  • Will any political event or policy have an impact on your business, for example, strikes?
  • How well do you know your target market?
  • Have you got a good location?
  • Are your premises owned or leased and do they allow for expansion and improvements at a later stage?
  • How many skilled and unskilled staff will you employ?
  • What percentage of your staff will belong to trade unions and what is the culture of the trade union?
  • If you have a manufacturing business will you need to buy new or second-hand machines, and how will this affect your cash flow?
  • Do you have good stock and quality control?
  • Do you have a place to store the finished product?
  • How sensitive is your business to the ups and downs of the economy?

Financial risk

Financial risk is determined by the financial state of your business and the security you are able to offer. When it comes to your business's finances, we need to know how much cash you are willing to contribute to your business and where it comes from. This means that you will have to prepare a cash flow projection for at least 24 months.

Bear in mind that a cash contribution cannot be in the form of other loans. It should be an amount of at least 20% to 50%, depending on the type of business and set-up costs. In need, you should be able to pay back a loan from your cash flow.

We will look closely at your breakeven point, and prefer to see a cash margin of safety of at least 20%. This simply means that you will need 20% more cash than the absolute minimum required. We also want to know what back-up plans you have if your sales do not meet your expectations.

We will also need security before we can grant you a loan. When deciding on the security required, we will look at both your personal and business assets. Very often, the equipment that you will buy can form part of the security you offer.