Assess It!
This module is packaged in the following courses:
"Discover among the entrepreneurs of today the empire builders of tomorrow."
The Banking Dilemma
Throughout the world, large institutions seldom finance the establishment of small enterprises simply because the relative costs of acquiring information relevant to the loan-granting process are much higher than the costs for larger business ventures.
For this reason, banks entering this untraditional market are likely to encounter a learning curve that is long, steep and seemingly unrewarding. On the other hand, from the perspective of people starting up or operating small enterprises, the perceived failure of banks to meet their needs is confusing, frustrating and disheartening. Lending institutions, accused of being indifferent to the needs of the disadvantaged, are often frustrated that their own situation is often unappreciated. Many borrowers fail to appreciate that lenders are not investors. Investors risk their capital in return for a share of profits, and will expect and demand higher profits for greater risks.
Lenders, on the other hand, do not earn a share of profits at all but instead set a price for the use and return of their capital which is, of course, interest. Underlying the business of lending money as opposed to investing it is the assumption that the capital sum will be returned in full together with interest as payment for the opportunity.
Lending Criteria
For this reason the criteria lenders apply to assess risks differ greatly from the criteria investors apply. Where investors are more likely to assess the entrepreneur’s character and the viability of the business idea, traditional lenders are more likely to assess merely the entrepreneur’s own capital contribution and collateral. The purpose of these criteria is to eliminate, as far as possible, the risk that lenders may not recover their loans.
The danger, of course, is that in their eagerness to assess capital and collateral, lenders may inadequately assess the borrower and the business viability. The unfortunate result is that sometimes lenders refuse loans to those who lack the required resources but who have fantastic entrepreneurial ideas, while granting loans to those who have the required resources but whose business ideas are less promising.
Solving the Dilemma
Existing materials and programmes may perhaps contribute to narrowing this gap, but clearly something more relevant is required. What is needed is a programme tailor-made to address the divide between loan assessors and loan applicants, a programme designed specifically with input from financial institutions regarding the decision-making processes behind loan assessing.
Assess It therefore aims to develop the capacity of loan assessors to more sensitively assess loan applicants and business plans, enabling them to supplement their “transactional” criteria and methods with “relational” models of assessment.
The objectives of the Assess It are:
- to sensitise financial institutions to the critical success factors in the small, micro and medium enterprise market
- to equip loan officers with a set of assessment tools to quantify and formalise the kinds of small, elusive judgements of loan applicants passed in the course of relating to them and evaluating their plans
For loan assessors the programme imparts a deeper understanding of the daily pressures within the SMME market in a way no textbook or conventional training programme could. The materials sharpen awareness of the kind of planning required for success and shape, particularly in the minds of loan assessors, an intuitive grasp of the kind of person who turns a thorough plan into a thriving business.
Assessor training will:
- explore various unconventional but potentially insightful ways of looking at business plans
- learn how to use a series of evaluation tools to complement business plan assessments
- deepen the understanding of the pressures facing small, medium and micro enterprises
- sharpen the sense of the kind of planning and decisions that contribute to success
- and become more familiar with the kind of person who turns a thorough plan into a thriving business!
Why Assess it?
The Institute for Entrepreneurship has developed a unique rating system is to help build an armoury of questions and to develop a habit of questioning. So, instead of asking only one, big question: “Is this a viable business plan?” the assessment process is broken up into a series of smaller, simpler questions which are easier to evaluate one by one and which together lead to a more reliable judgement than one general question.
The idea is, by degrees, to move out of a state of ignorance and doubt, towards a state of increasing knowledge and certainty.
General "Diagnostic " Questions
These are the ten general, “diagnostic” questions that loan assessors will need to ask repeatedly throughout the process of assessing a business plan:
- What has been omitted?
- What has been under or over-valued?
- How realistic is this?
- How sensitive to change is this?
- To what extent is this viable?
- What information is being presented?
- How has the information been analysed?
- What are the critical assumptions?
- What are the implications?
- How will this information/plan help the company to grow the business?
General Outcomes
By the end of the assessors training course, participants will:
- develop a habit of questioning assumptions and implications
- discover what could and should be included in each business plan component
- discover what can be left out of each business plan component
- discover what kinds of flaws are expected in each business plan component
- develop a habit of not taking a business plan or financial statement at face value
- develop an appreciation for those business plans that can get across their message concisely!
Specific Outcomes for Assess It
By the end of the loan assessors training course, participants will be able to assess:
an entrepreneur in terms of:
- five commitment indicators
- five competence indicators
- five character assets
enterprise management by evaluating:
- the market need underpinning a business venture
- the extent to which customer research can contribute towards business growth
- the extent to which competitor research can contribute towards business growth
- the extent to which a situation analysis may contribute towards business growth
- the realistic value of market estimates such as estimates of market size, market share and sales volume
marketing management by evaluating:
- the positioning of the business
- the promotional plan
- the location of the business
- the distribution channels
- the prices and pricing strategies
operational management by evaluating:
- a start-up plan
- a production plan
- an operational plan
- accounting & legal requirements
- fixed, variable and total costings
financial management by evaluating:
- the break-even analysis
- profitability
- cash flow
- assets and liabilities
- finances required
the entrepreneur’s:
- capital contribution
- collateral
Loan assessors will be able to integrate all these assessments into a single, standard evaluation for each entrepreneur and business plan they encounter.
