One of the major problems faced by SMEs of developing countries in general and Pakistani SMEs in particular, is apprehension about and lack of ability to arrange financing from financial institutions in the formal sector.

Small and medium entrepreneurs lack adequate resources to make key decisions concerning not only the selection of an appropriate financial institution but also the manner in which they approach it for financial assistance. In order to provide assistance in this regard, SMEDA, in collaboration with the International Trade Center (ITC) has developed an information resource 'How to Approach Banks - A Guide Pakistani Entrepreneurs'.

'How to Approach Banks' is a guide for Pakistani entrepreneurs; aimed at introducing them to ways and means of obtaining short-term credit from banks, negotiating terms and conditions associated with it, assessing their financial needs and analysing payment methods. In doing so, the book also highlights:

Various options available for trade credit facilities;
* A number of financial institutions and offers rcommendations on how to approach them;
* The method of preparation of your business plan.

Listed below is an overview of the topics discussed in this book:

Assessing Financial Needs

Is borrowing the only available solution in a situation where your business is not generating enough cash? This section discusses how to determine your initial need for external financing and acquaints you with the pros and cons of borrowing. It also educates you about different methods used to generate cash flows internally from your business and equips you with different tools that can be used to increase the productivity of your fixed and current assets.

Methods of Payment and Financing Techniques

Obtaining external financing is your last resort, and you want to know the details of options available to select the one which best suits your needs. This section covers a variety of facilities and services that are available to SMEs for short-term financing and accordingly specifies their respective methods of payment.

Whom to Approach for Short-term Finance?

Pakistan's formal financing sector has progressively evolved over the course of time, however, SMEs are not fully aware of the banking sector, different type of financial institutions, their functions and scope of work. This section has been designed to give you an introduction to the banking sector of Pakistan.

How to Approach Lenders?

Is it the first time that you are approaching a bank for a loan request and don't know how to go about it? Or has a bank previously turned down your request? As a borrower you probably know that lenders and in particular banks, have pre-decided specific criteria against which they measure entrepreneurs who approach them for financing. These criteria and requirements have been clearly outlined in this section. In addition to this, tips have been given on ways of presenting your loan requests effectively to your lenders.

Negotiating Short-term Credit

You are your own selling person when you have to sell your loan application to the bank. Consequently deciding on the terms of contract is a technique you need to master. Under this section, recommendations have been provided on different methods of striking the best deal with your lender. Suggestions have been given on how to deal with the worst case scenario of default and how to negotiate new terms.

Loan Contracts and Legal Documentation

Ideally your banker should introduce you to all legal documentation involved in providing you with financial assistance. In case this does not happen, this section has been included to assist you with understanding all legal procedures and documentation involved during the process of obtaining short-term credit. It also includes clarification of 'Documentation on Security' and 'Documents Used in Documentary Credit Transactions'.

In addition to the above-mentioned categories, 'How to Approach Banks' also includes addresses, phone numbers and other contacts of sources of assistance and supplementary material. All technical terms used have been defined elaborately with the help of a glossary included at the end of the book. This book is intended to serve as a primary reference tool for SMEs in need of a practical guide on ways to approach lenders for short-term credit.

Kindly contact your nearest SMEDA office on how to buy this publication!