Business proposal


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Assignment, Business Mathematics, BBA-BI 1st semester, Ace Institute of Management

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Business proposal

  1. 1. Q. Suppose you want to take a loan from a financial institution (Grade A, B, C or D) and youwant to repay the sum in installment basis. Depending upon the following key points, preparea report and present it in the class. Please do not forget to write the name and phone numberof the people whom you meet in the process.NOTE: This report is based on the assumption that the financial situation in the related banksis sound and suitable. Thus we are allowed to borrow the required sum of money without anysort of difficulty.Introduction (Departmental store):A departmental store is a retail establishment whichspecializes in satisfying a wide range of theconsumers personal and residential durable goodsproduct needs; and at the same time offering theconsumer a choice multiple merchandise lines, atvariable price points, in all product categories.Department stores usually sell products includingapparel, furniture, home appliances, electronics, andadditionally select other lines of products such aspaint, hardware, toiletries, cosmetics, photographic The worlds largest department store, theequipment, jewelry, toys, and sporting goods. Certain Shinsegae Centum City in South Korea.department stores are further classified as discount department stores. Discount departmentstores commonly have central customer checkout areas, generally in the front area of the store.Department stores are usually part of a retail chain of many stores situated around a country orseveral countries. 1. What is your detail plan after taking the loan? We, as a group of five members, have decided to invest in a business. We plan to open adepartmental store in the name of Empirical Investment Group (EIG). As we had planned, wedecided to open a medium sized departmental store. Thus, with our calculations we wouldrequire a loan of about 40 lakhs. We plan to invest 60 lakhs from our personal funds. Those 60lakhs would come from Rs. 1 lakh 20 thousand each from five members. Thus we would have ajoint capital of Rs. 40 lakhs (loan amount) + 60 lakhs (invested amount) = Rs. 1 crore (totalcapital). We have assumed that it would take us of about 3 months to gather the capital
  2. 2. resources. Therefore, since the allocation of the capital started from the 1st week of 2010, we willhave the necessary funds within the first week of April 2010. The first thing that we plan to do after we have the required capital is to search for asuitable place for the departmental store. Baneshwor is a very suitable place for it can provide uswith a good market. The large population prevalent there gives us higher chances of success. Wewould require a pretty big area for the store. The size of the store would be about the size of ourcollege. Buying a land in this case might no be so feasible, so in a month or two, we haveplanned to rent a place. The task of searching for the right place goes parallel with the allocationof the funds. So, we would assume that we would have found a suitable place within the end ofFebruary 2010. The deal is such that Rs. 50 thousand is agreed as advance and we would requirepaying monthly rent of Rs. 1.5 lakhs of the tenure of 10 years. After getting the building, we will require goods to sell in the store. Now, we plan toimport goods from not only Nepal, but abroad as well. The contractual negotiations may takesome time and cost us up to Rs. 50 thousand. We have separated about 3 months for this task.We assume we would be in the position to complete this task within the second week of April.Along with the goods we would also have to buy racks and shelves to display the goods. Wehave separated the budget of Rs. 5 lakh for buying these items. Along with this Rs. 25 lakhswould be spent for the goods that are to be sold in our store. The next step is to hire employees. According to our plan the number of employeesshould not be greater than 17. These employees include receptionists, accountants, janitors,security guards, and maintenance staffs. Additional number of staffs may be hired if required.The hiring of staffs would be complete within the end of April or so and cost us Rs. 50 thousand(Approx.). Thus we would be ready to commence our business form the first week of May 2010.Summary: (Table Diagram) Expenses Amount Rent advance Rs. 50,000 Contractual Negotiations Rs. 50,000 Racks/Shelves Rs. 5,00,000 Goods Rs. 25,00,000 Employee Hiring Expenses Rs. 50,000 Rent till April (minus advance 50,000) Rs. 4,00,000 Salary till April (from March) Rs. 1,75,000 Petty Expenses Rs.1,00,000 Total Rs. 18,75,000
  3. 3. Expenses till May 1st 2010 Rent advance Contractual Negotiations Racks/Shelves Goods Employee Hiring Expenses Rent till April (minus advance 50,000) Salary till April (from March) 2. Which bank do you choose and why? Well, assuming that the economic state of the banks is stable and suitable, we plan to takeloan from “Himalayan Bank Limited”. This is because it has seemed capable enough aid ourneeds in more than one way. Compared to other banks it would provide us with lower interestrates and better facilities. It seemed to us that a probable deal within us would benefit both of usin financial terms. It presented various schemes before us, among which we preferred to choosethe “Small and Medium Enterprise Loan”.Small and Medium Enterprises (SME): As a step further to help establishment, growth and expansion of small and medium sizedenterprises, Himalayan Bank has developed a special loan package meant just to suit small andmedium sized enterprises. Business houses coming from industrial, trading and service sectorcan avail of this facility to meet their short-term and long-term financing needs. This could comein any form- funded or non-funded, depending on specific needs of the business enterprise: i. Funded/Non-Funded Facility in range of Rs. 0.5 M to Rs. 40.0 MThe interest rates applicable on small and medium sized enterprise loan package range between10.00% and 12.50% per annum and this depends upon the type of facility.More about the Himalayan Bank:
  4. 4. Introduction Himalayan Bank was established in 1993 in joint venture with Habib Bank Limited ofPakistan. Despite the cut-throat competition in the Nepalese Banking sector, Himalayan Bankhas been able to maintain a lead in the primary banking activities- Loans and Deposits. Legacy of Himalayan lives on in an institution thats known throughout Nepal for itsinnovative approaches to merchandising and customer service. Products such as PremiumSavings Account, HBL Proprietary Card and Millionaire Deposit Scheme besides services suchas ATMs and Tele-banking were first introduced by HBL. Other financial institutions in thecountry have been following our lead by introducing similar products and services. Therefore, itstands for the innovations that it brings about in this country to help our Customers besidesmodernizing the banking sector. With the highest deposit base and loan portfolio amongst privatesector banks and extending guarantees to correspondent banks covering exposure of other localbanks under our credit standing with foreign correspondent banks, the bank believes that itobviously lead the banking sector of Nepal. The most recent rating of HBL by Bankers‟ Almanacas country‟s number 1 Bank easily confirms its claim. All Branches of HBL are integrated into Globus (developed by Temenos), the singleBanking software where the Bank has made substantial investments. This has helped the Bankprovide services like „Any Branch Banking Facility‟, Internet Banking and SMS Banking. Livingup to the expectations and aspirations of the Customers and other stakeholders of beinginnovative, HBL very recently introduced several new products and services. Millionaire DepositScheme, Small Business Enterprises Loan, Pre-paid Visa Card, International Travel Quota CreditCard, Consumer Finance through Credit Card and online TOEFL, SAT, IELTS, etc. fee paymentfacility are some of the products and services. HBL also has a dedicated offsite „DisasterRecovery Management System‟. Looking at the number of Nepalese workers abroad and theirneed for formal money transfer channel; HBL has developed exclusive and proprietary onlinemoney transfer software- Himal RemitTM. By deputing our own staff with technical tie-ups withlocal exchange houses and banks, in the Middle East and Gulf region, HBL is the biggest inwardremittance handling Bank in Nepal. All this only reflects that HBL has an outside-in rather thaninside-out approach where Customers‟ needs and wants stand first.HBL is not only a Bank, It is committed Corporate Citizen Corporate Social Responsibility (CSR) holds one of the very important aspects of HBL.Being one of the corporate citizens of the country, HBL has always promoted social activities.Many activities that do a common good to the society have been undertaken by HBL in the pastand this happens as HBL on an ongoing basis. Significant portion of the sponsorship budget ofthe Bank is committed towards activities that assist the society as large.
  5. 5. The Bank’s Vision: Himalayan Bank Limited holds of a vision to become a Leading Bank of the country byproviding premium products and services to the customers, thus ensuring attractive andsubstantial returns to the stakeholders of the Bank.The Bank’s Mission: The Bank‟s mission is to become preferred provider of quality financial services in thecountry. There are two components in the mission of the Bank; Preferred Provider andQuality Financial Services; therefore we at HBL believe that the mission will be accomplishedonly by satisfying these two important components with the Customer at focus. The Bank alwaysstrives positioning itself in the hearts and minds of the customers.The Bank’s Objective:To become the Bank of first choice is the main objective of the Bank.The other banks consulted with include, Nepal Bank Limited Nabil Bank 3. What is the process of taking loan from different banks? The first thing that we need to do to acquire loan from a bank is to access our financial need.We also have to keep in mind the important things like collateral, interest rate and the time due.For the 40 lakhs that we have borrowed form the bank, we have assured a piece of land worthRs. 55 lakh as collateral. That piece of land is an asset of EIG from previous investments in otherprograms. Generally, to take loan from banks or any sort of financial institution, we must follow a set ofactions. The things included in this procedure are: 1. Loan Application We have to submit an application to the bank. The things mentioned in the application shouldbe very precise. The important points not to be missed in the form are:  Name of borrower  Legal status of the borrower  Address  Purpose
  6. 6.  Amount sought  Turnover  Profitability  Business worth  Etc. 2. Interview After the application is submitted, a detailed interview is taken. It is from this interview thatthe decision to be loaned the money is made. Thus correct information and facts should beprovided. Any sort of financial facts should not be hidden. 3. Inspection and Enquires Then the bank will further do some inspection on our provided information. Then it willassist to reconcile the available information with the actual one. The bank will do some furthermarket enquires for extra information with regards to ours personal to business habits. Loan from Nabil Bank:There are tow type of loan schemes that Nabil bank has to offer and that also suites our demands.They are: Working Capital Loan Overdraft / Short term loans to finance your day-to-day business activities. Basically, this loan will help us to build up our inventory and receivables to a desired level, against which the loan will be disbursed. Fixed Capital Loan While we are looking to finance our projects or acquire fixed assets, the bank is always open to finance our requirements. Generally, this is a long term loan for acquiring or purchasing machinery, equipment, land and building. The tenure of repayment is cash flow based. Loan from Nepal Bank LTD: Any individual, companies, and firms can take some sort of loan from the bank. But, allthe borrowers should be a Nepalese citizen. The loan can also be taken against the shares owned
  7. 7. by any person or company.Further Details,Maximum Loan Up to single obligor limitAmountMinimum Loan Rs. 500000AmountDraw Down The draw down is restricted to 60% of the shares of all listed companies and 70% of the shares of Standard Chartered Bank Nepal Limited.Tenure The loan is revolving in nature until terminatedInterest Rate (%) Approved Limit Interest Rate (%) Rs 50,00,000 9.5 Rs 50,00,000 - Rs 100,00,000 9 Rs 100,00,000 - Above 8.5Security Pledge over the shares and lien of right shares, dividends and bonus shares Management fee: 0.25% of the loan amount upon approval of the loan. Documents Required:The bank required the following documents and criteria to be filled, Loan application form duly filled and signed, by the borrower Original share certificates. Letter of consent issued by the borrower addressed to the concerned companies for the pledge of shares with NBL. Letter of consent from Borrower to the concerned company for the lien over shares in favor of NBL and accretion (Dividend, Bonus shares, Right shares).In order to obtain information regarding the loan scheme we contacted the person heading theGeneral Inquiry section,
  8. 8. Loan from Himalayan Bank: As a step further to help establishment, growth and expansion of small and medium sized enterprises, Himalayan Bank has developed a special loan package meant just to suit small and medium sized enterprises. Business houses coming from industrial, trading and service sector can avail of this facility to meet their short-term and long-term financing needs. This could come in any form- funded or non-funded, depending on specific needs of the business enterprise: i. Funded/Non-Funded Facility in range of Rs. 0.5 M to Rs. 40.0 M The interest rates applicable on small and medium sized enterprise loan package range between 9.00% and 12.50% per annum and this depends upon the type of facility. 4. How much do you want to take from the bank? Our aim is to open a medium sized departmental store. So according our calculations we willneed an amount of up to 1 crore. So beside the personal investment from us investors, whichmounts up to Rs. 60 lakhs, we will further require a loan of about Rs, 40 lakhs. 5. When would you start to repay the sum? From our calculations it would take us about 3 to 4 months to set up the store. Thus wewould start to repay the sum from the fifth month. So, with the interest rate of 9.5% we wouldstart to repay the sum from the start. We are planning to pay the sum form the 1 st month of usborrowing the money. This would help us in the long run. We can ease the financial burden uponus by starting to pay back the sum of money as soon as possible. At first, when use up the moneywe borrowed, we would not have any amount left to pay back to the bank as monthly installmentwith the additional interest of 9.5%. Thus in such condition we plan to use our personal investedmoney to pay back to the bank till the time that our department store starts to generate enoughprofit to sustain its existence as well as repay the loan amount to the bank with certain sum ofinterest.
  9. 9. 12000000 10000000 8000000 6000000 Income Expenditure 4000000 2000000 0 1 2 3 4 5 6 7 8 9 10 Expected Earning and Expenditure 6. What is the rate of interest for the different payment schedule?The bank has provided us with many schemes. These schemes have their own set of interestrates. From our research we have found out different interest rates ranging from 8.0% p.a to12.5% p.a.Nepal Bank ltd- interest rates ranged from 8% p.a to 10% p.aHimalayan Bank- interest rates ranged from 7.5% p.a to 12% p.aNabil Bank- interest rates ranged from 8.5% p.a to 12% p.a 7. Which payment system do you prefer? Considering our financial position we would prefer to pay back the sum in a monthly basis atthe end of each month (immediate due). The sum of money we have borrowed is set to theamount of Rs. 40, 00,000. The interest rate is set to be at 9.5% p.a. The time we have set to payback the sum is six years. It can also be termed as 72 months. So in each month we have to paythe amount of Rs. 75 thousand (Approx.). Thus following this schedule we can pay back our loanin 6 years. In this time we will be aiming to land huge sums of profits.
  10. 10. 8. What is the present value, annuity due and interest which you are going to pay to the bank for he facility provided by the bank? Present value: Here, Present Value = 4000000 The total sum of money borrowed acts as the present value. Annuity Due: P.V = 40, 00,000 R= 9.5% P.A = 9.5/12 (per month) = 0.1791 I= 0.0079 N=72 [6 × 12 (in months)] P.V = P / I × [ 1 – {1 / ( 1 + I ) ^n } ] 4000000 = P / 0.0097 [ 1 – { 1 / (1.0097) ^72} ] P = 73058.745 (Approx.) Interest: Interest = 9.5% of Rs. 40, 00,000 = Rs. 3, 80,000 So, in 1 year (total 6 years) = 63,333.33(Approx) In a month = 5,277.77 (Approx) 9. How will you be benefited from this loan? It is not always possible to have the immense financial power that an entrepreneur needs tostart a business. So by taking loan, we would get the much needed financial assistance to operatea business. Of course we do have to pay back the sum with certain amount of interest, but that isa risk worth taking.
  11. 11. References: I. Internet a. b. c. II. LibraryIII. NewspapersIV. MagazinesContact Information: Nepal Bank Ltd: Dharmapath, Kathmandu Tel.: 422 2397 Email: Himalayan Bank: Thamel, Kathmandu Tel.: 4227749, 4250201 Email: Nabil Bank: Tripureshwor, Kathmandu Tel.: 44117015-16 Web Address: