How to Get a Loan for a Business - Case Study Example

Abstract The purpose of this paper is to present a business report about a loan that has been awarded to a young businessman from Kenya by name Geoffrey. The paper reports on the criteria used to give this loan and the businessman and type of business he is running. Geoffrey, a Kenyan aged 25 years runs a cereals shop and because of his desire to expand it further he wants a loan of KSH 60, 000. The business is still small although he hopes to convert it into a wholesale in five years. He sells maize, beans, sorghum and other cereals. Geoffrey has been chosen to receive this loan because of his knowledge and experience in business, operation in the agricultural sector, young age, the economy of his country which is still weak, his financial obligations as a man in the family, he is trustworthy and has the ability to repay the loan. The business is not exposed to many serious risks and its possibility of success in the future is high. The risk analysis done showed that the business is not exposed to serious risks that can hinder its growth and expansion. It therefore has the possibility of succeeding highly in the coming days. Table of contents Abstract……………………………………………………………………………….. 1 Table of contents………………………………………………………………………. 2 Introduction……………………………………………………………………………. 3 The criteria……………………………………………………………………………… 3 Business risk analysis…………………………………………………………………. 7 Loan…………………………………………………………………………………….. 8 Description……………………………………………………………………………… 9 Decision………………………………………………………………………………..... 9 Conclusion………………………………………………………………………………. 10 Kiva project report Introduction Small businesses need financial boost to be able to grow faster (Koehler, Koehler 2000). This report is about the criteria used to qualify Geoffrey for a small business loan. He is a Kenyan running a cereals business and he desires to get a loan to expand it. Geoffrey is among the many people on the website seeking for loans to do business. He has previously been awarded a KSH 30,000 loan from Faulu Kenya and now needs another loan of KSH 60,000 for further expansion. Geoffrey sells maize, beans, sorghum among other things and has been found to be dedicated to the business. His business is an important one considering the fact that it involves selling food to the locals. Geoffrey has been found suitable for this loan because he has the capacity to repay it, his business fall in the agricultural sector which is the backbone of his country’s economy; he fulfils the condition of buying equipment or expanding the business among other things. His business is not exposed to bad risks and therefore it has the potential for success in the future. The businessman is trustworthy and hardworking and therefore deserves alone based on this and the other criteria enlisted. The criteria Geoffrey is a Kenyan and the economy of Kenya is still young. More than 60% of Kenyans live below the poverty line on less than 1 dollar per day. Because of the high levels of poverty in Kenya Geoffrey qualifies for the loan because there is enough proof from the size of his business and family income that he is among the poor of Kenya. Even though the economy is the strongest in the East African region it is way below that of developed countries and therefore Kenya is classified as a poor country with a total nominal GDP of $ 34.8 billion. The economy is yet to become industrialized and therefore relies heavily on agriculture. This puts it in a vulnerable position because the prices of agricultural products on the world market keep fluctuating (Koehler, Koehler 2000). I have chosen to give the loan to Geoffrey who is a male because of the huge role he plays in his family as a father. He is the bread winner and provider in his family and having come from the African setting he is definitely required the support his extended family. Supporting the extended family is a common requirement of men in many African cultures. The assumption behind this decision is that Geoffrey needs to grow his business fast so that he can attend to the huge responsibilities awaiting him including educating his child who is due for primary school. He qualifies for the loan because he must be placed in a position where he can expand his business, increase his profits and by extension his income and therefore take better care of his wife, child and relatives (International Monetary Fund 2010).  Geoffrey’s business falls within the tertiary sector because he provides retail services to the general population. However in some economies such as that of Kenya it would be referred to as the agricultural sector because he sells farm produce and cereals in particular to consumers. Agriculture forms the leading income earner for Kenya’s economy and therefore is very important to the country. Since Geoffrey deals in agricultural produce he promotes agriculture and therefore deserves the loan. In the Kenyan context the agricultural sector is a critical one because of the aspect of feeding the nation. People dealing in such businesses deserve to be promoted and giving a lone to Geoffrey is one major way of doing this. Since his business can also be classified as a small enterprise within the sector it requires a lot of attention in terms of financial boosts to grow (Kiva 2005). The loan will be given to an individual called Geoffrey who runs a retail business. The reason for giving this loan to an individual and not a group is that the individual is a lone in the business and therefore he may not need a huge a mount of money as loan. He can easily manage the small loan he gets because he does not need to share profits with others as would happen in a group. The responsibility for management of the business fall directly on him alone and therefore management issues may not a rise as in group businesses. He is alone and therefore can control the business fully and make decisions easily hence smooth growth of the business. Since he operates alone he does not have to make many payments for the business and formal business requirements are also few (International Finance Corporation, 2012). Geoffrey also qualified for the loan because of his age. He is still a young man having reached 25 years old and this only a beginning for him. There is a lot of potential in him that he can exploit in his future business career (Action coach 2012). Giving him a loan can help him to build a solid foundation for his business career. For him and at his age there is a lot to discover and he can do a lot when given the money he needs because he has the strength, time and desire to excel in business. Another reason that makes him qualify for the loan is that he does not have many things to attend to such as a big family. Because his family is still small and young his responsibilities to the family are few and less demanding and therefore he can dedicate more quality time to the business to make it grow. It is also possible to re-invest the profits he gets into the business for faster growth because the financial demands he has from his family are not too many. Therefore the chances of his succeeding in this business are high (Weltman, Raeburn 2007). Another criterion used to ward Geoffrey the loan is the proof that he has the ability to repay the loan. The ability to repay the loan is very important for a loan to be granted. This gives confidence to the lender that the money will be repaid. This ability can be called the capacity for repayment. By observing the cash flow in the business there is evidence that the business can produce the money to repay the loan. Apart from the cash flow it is possible there are other forms of repayment that Geoffrey can use to repay his loan. This includes the physical assets his family has which he can easily sell of to raise the money (Mohini 2007). The character of Geoffrey allows him to qualify for the loan. Looking at his trustworthiness based on things such as experience in business, knowledge of business, small business and personal credit history and education. He is trustworthy because he has been doing this business for some time and from that he has gathered enough experience to be able to manage it and manage the money that he receives in terms of loans. He has business knowledge because he has been able to expand the business from what he started with. This is evidence of productivity and without knowledge it could have been very hard to realize this kind of growth. His small business credit history is good because he does not have problems repaying loans because he has been able to repay his initial loan (Weltman, Raeburn 2007). The capital or initial investment that Geoffrey has put into his business shows that he can be able to repay the loan. His investment in the business shows that he has confidence in it and that he can nurture it to raise the money needed for repaying a loan. Considering collateral, it is also possible that the loan will be repaid because Geoffrey can easily get a personal guarantee who can commit to repay the loan incase Geoffrey is not is a position to do so (Oswald, Tilley 2003).  Geoffrey fulfills the conditions for getting the loan. He wants to use the loan to expand the business more and this is one of the conditions for getting the loan. Otherwise if he was buying equipment with the money he would still qualify. The loan is meant to help him and others get out of poverty and expansion of his business will no doubt put him on this course. He has a good customer base also considering the fact that he has been able to grow the business from something very small to what he has now. Definitely he gets customers, sells and makes good profit from this business (International Finance Corporation (2012). Business risk analysis The risks that Geoffrey’s business may be exposed to in Kenya include loss of intellectual property, theft of his property and stock, increased competition in the area from people dealing in the same business, failing to comply with regulation, legislation and standards, bad debts created by customers, negative cash flow and natural disasters like storms and fire. Some of these risks are big while others are small and their impact is not big. Big risks include fire, theft, and negative cash flow. These one if not taken care of properly have the potential of adversely affecting the business incase they happen to occur (Action coach 2012). The possibility of the loss of intellectual property taking place is low since apart from the name the business may not be having a lot other property that people may steal. The impact of such a risk happening to the business would be small because there is no much investment in intellectual property for a business of this type. This means it is not heavily dependent on intellectual property to survive. Besides, there are stringent rules governing the ownership of intellectual property in the Kenya (Candice 2010). Theft of property and stock is a real threat but its probability can be rated as medium because there are guards to watch over the business when the owner is away. Increased competition has a high probability of happening because there is little that the businessman can do to control competitors. He can only diversify his business since relocation is not viable for him. However since he has a strong customer base he is working at maintaining it and this will help him overcome the threat of competitors. Another threat is his failure to comply with regulation. The probability of this risk is low because the business is small and therefore doe not have many legal requirements. Nevertheless Geoffrey is a straightforward person who is doing his best to comply with the law. Bad debts can also threaten the business but this is medium since the businessman has set a limit beyond which he cannot sell on credit before the existing debt it cleared. This helps him to reduce the amount of money lost debtors. Natural disasters can happen and the possibility such a risk is high. There are precautionary measures against these disasters but very little can be done to guarantee safety (Action coach 2012). Loan The cereals business done by Geoffrey is very important to him because that is where he gets money to feed his family. It is a small business that has a huge potential for growth and when it has grown probably in three or four years he will be able to provide employment to many more people. Lenders should therefore take interest in giving him a loan because of this. An investor seeking to improve the livelihoods of may people should find it appropriate to invest in such a business. Besides, it is a business that provides services to the local citizen hence acting as a pillar in the local economy. Since it involves the purchase and sale of agricultural products in this case cereals it promotes farming and food production directly. Agriculture is an important activity in third world economies and therefore requires a lot of support and investment. Provision of services especially the sale of food such as cereals to the population plays a very critical role in feeding families. It is therefore a very important business especially in residential places. In the Kenyan context the potential that small business enterprises have to contribute to the growth of the economy is massive. Supporting and investing in such businesses is a good way of investing into the economy of the country (Mohini 2007). Description Geoffrey is a young Kenyan man aged 25 years and married with one child who is five years old. He runs a small business in which he sells cereals to be able to support his family. He also sells water besides this to supplement his income from the cereals business. Geoffrey is a hard working and determined person because in the midst of his lack of employment he has decided to start his small business which he has grown to what it is now. He is business oriented since he has been able to use the first loan he got properly to bring his business to its current status. He is also much focused as he is seeking a bigger loan of KSH 60,000 to expand his business more. He used his first loan to buy cereals and ploughed the profits back into the business to expand it. He is also a responsible family man who cares for his wife and child from the meager earnings he gets from his cereals business. Information about Geoffrey’s profile is available at http://www.kiva.org/. Here there is information about his business and family and the prospects of the business for which he needs a loan (Mohini 2007). Decision Geoffrey fits in the criteria of receiving a loan because of his enterprising nature and ability to multiply wealth. Initially he got a loan of KSH 30,000 which he used well to increase the volume of his business. The decision to give him the loan was inspired by the fact that he has focus, is determined and he comes from a poor economic background. His efforts to raise the living standards of his family need to be boosted. Considering his business experience and skills, there is a high likelihood that in the near future he will become a prominent business man. This means that he has the potential to employ many other people and give them an income every month thereby helping them to get out of poverty. Geoffrey has a big vision of owning a wholesale within five years. He has brilliant ideas and faith in this business because from where he is he can see into the future. He has well set objectives and goals which he seeks to achieve. Owning a wholesale will enable him to increase his capacity of dealing in the cereals and in the process he can help many upcoming retailers to establish their businesses by sharing his skills with them (Oswald, Tilley 2003).  There is high potential in Geoffrey’s business and the chances of the business succeeding in the future are very high. The solid plan and goals that he has to own a wholesale in the next five years is proof that he is aiming and working at something. Looking at what he has done so far with the little money he got through his first loan we can see that given another loan he can do greater things. The cereals business has high chances of success in the future because it is very relevant. The cereals such as maize, beans and sorghum are very important foods in Kenya with maize being the staple food for almost all the communities in the country. Beans are consumed by more than half of the country alongside the maize. This makes the cereals business a very promising one and seeking to have a wholesale in such kind of a business guarantees one a successful future (Weltman, Raeburn 2007). Conclusion In conclusion, the report is about Geoffrey and his cereal business and what makes him deserve to get a loan. He is a 25 year old man in Kenya married and with one child. His is a small enterprise which he seeks to expand into a wholesale in five years time. The chances of his business succeeding are high because he has a good customer base owing to the fact that he has been able to expand it since he started to introduce more cereals that he did not begin with. The business is worthy investing in because it is a potential source of income for many other people that will get employment there. Besides it provides basic services to the local people. Geoffrey qualified for the loan on the criteria that he has the ability to repay the loan, he comes from Kenya where the economy is still weak, his business falls within the agricultural sector which is an important one in his country, he is young and being male he has the obligation to provide for his family and the purpose for requesting for the loan fulfils the conditions. He wants to expand the business and therefore fulfils the condition of expansion or purchase of business equipment. Having fulfilled all the criteria and conditions required to get the loan Geoffrey will be given the loan and this is expected to help his business grow thus improving his financial position and that of many others. References Action coach (2012) Challenges facing SMEs in Kenya. (Online) Available at: http://www.smenetwork.co.ke/index.php?option=com_content&view=article&id=152:ch allenges-facing-smes-in-kenya&catid=45:business&Itemid=106. Viewed 28 May 2012. Candice L. (2010) Risk management in small medium enterprises (SME): How does risk management in small-medium enterprises contribute to the company financial performance? GRIN Verlag. International Finance Corporation,(2012), How to Finance your business. (online) Available at: http://kenya.smetoolkit.org/kenya/en/content/en/478/How-to-Finance-Your-Business. Viewed 28 May 2012. International Monetary Fund (2010) Kenya: Poverty Reduction Strategy Paper; International Monetary Fund. Kiva (2005), Empower people around the world with a $ 25 loan. (Online) Available at: www.kiva.org. Retrieved 28 May 2012. Koehler, D.M., Koehler C. (2000) Insider’s guide to small business loans, Oasis press. Mohini M. (2007) Expanding access to finance: Good practices and policies for micro, small and medium finance. World Bank Publications Oswald J., Tilley F. (2003) Competitive advantage in SMEs: Organizing for innovation and change. John Wiley & Sons. Weltman, B. Raeburn V. (2007) The Rationale Guide to building small business credit, Rational press. Read More