By Jerome Mutumba
WINDHOEK – The Development Bank of Namibia (DBN) has the mandate to provide loans that satisfy the requirements of Namibian development. As it has limited resources and is accountable to various stakeholders, it has to ensure that its capital is preserved. It also has to ensure that its capital grows, so that it can provide sustainable returns to the shareholder who has placed capital in the bank.
In order to fulfil its mandate, the bank appraises loans carefully to select the projects with the highest probability of success. However, the bank understands that it is not only making a lending decision on the basis of the business plans it receives. The character and abilities of the business owners and managers who are implementing those plans are equally important.
In essence, the bank makes two decisions. Firstly, is the plan feasible? Secondly, is the project promoter able to implement and sustain the plan?
Although the plan may be excellent, the project promoter has to display the hallmarks of excellence as well.
Seven factors that create positive impressions of project promoters:
Skills
The project promoter has to demonstrate the necessary combination of skills to sustain the enterprise. There will typically be two broad skills sets: business administration and skills for productivity. To illustrate the point, a business that manufactures equipment will need business administration skills, but will not succeed if the skills to produce the equipment are not provided for. DBN analysts will want to ensure that the business has the correct combination of skills.
Qualifications
Sound qualifications support skills, but are not always necessary, except in the case of professional services. The presence of sound qualifications, appropriate to the enterprise, will strengthen the possibility of a decision in favour of the application.
Track record
If the project promoter can demonstrate a track record of successfully managing an enterprise, or a similar enterprise, this will count in the favour of the application.
Realism
Although the project promoter may be tempted to inflate cash flow projections and / or understate costs, this will count against the project. DBN analysts have developed extensive experience in accurately estimating realistic cash flows and will note if they are not realistic. Unrealistic cash flows indicate that the enterprise will not be able to meet obligations to repay the loan.
Confidence
The project promoter is expected to display confidence in the enterprise. This is typically measured by the promoter’s willingness to capitalise the enterprise from own resources and to offer additional collateral as required. If a project promoter is unwilling to provide own capital or refuses and acceptable level of collateral, especially when the promoter’s balance sheet clearly indicates that he or she can do so, DBN cannot be expected to have a high degree of confidence either, and may reject the application.
Integrity
Project promoters are expected to provide full disclosure on all matters relevant to applications. Personal and corporate credit checks are conducted and all required documentation is checked. Failure to provide full documentation will count against the project promoter.
Trustworthy references
In addition to satisfying the above requirements, project promoters may consider submitting trustworthy references from professional service providers, professional bodies, suppliers and contractors. The bank conducts ITC checks too to determine the creditworthiness of the promoter. These will increase the confidence of DBN in the application.
The list may seem daunting, but these are standards applied by reputable lenders locally, and across the globe.