This document discusses various sources of financing for businesses. It notes that access to financing is often cited as a barrier to starting or growing a business, especially for women and minority entrepreneurs. Internal financing from family and friends is one source, but businesses may also seek external loans, equity investment, or retained earnings. In Pakistan specifically, most new investment and working capital for SMEs comes from internal financing rather than banks due to conservative lending practices. The document outlines some microfinancing options provided by non-profit organizations in Pakistan.

1. Financing the
Business

2. Finance
You have to hang on to that
money like its gold. Look
after every pound because it
will allow you to get your
idea right and prove it.
Nobody will give you money
until you prove your idea is a
winner….There’s lots of
money out there but only for
proven concepts.
Martyn Dawes

3. Financing the Business
All that Entrepreneur needs is Money
Lack of access to finance is cited as one of most
reported barrier to start or grow the business
In recent years, women entrepreneurs and minorities
complain about it

4. Financing the Business
All that Entrepreneur needs is Money
How?
Control over business vs Provision of Funds
Flexibility and Security at minimum price

5. Financing the Business
All that Entrepreneur needs is Money
Sources?
From Family, Relatives, Friends
(Internal Finance)
Does this mode requires any formal written
agreement (terms and conditions)

6. Financing the Business
All that Entrepreneur needs is Money
External Sources?
Loans
Shares
Partnership

7. Loans
Advantages
• Term of loan is fixed –
not repayable on
demand
• Interest & capital
repayments fixed &
known in advance
• Rate of interest
usually lower than
overdraft
Disadvantages
• Usually secured
• Can be refused
because of lack
of security
• Requires good
cash flow to
pay interest &
repay capital

8. Bank Overdraft
Advantages
• Flexible, once
agreed available
on demand
• Cheap
• Good solution to
short-term need
Disadvantages
• Repayable on
demand
• Usually secured
• Can be refused
because of lack of
security
• Higher rate of
interest than loans

9. The Bankers’Anagram
Character
Ability
Management
Purpose
Amount
Repayment
Insurance

10. Banking Relationships
• Trust and respect
• Personal relationship - regular contact
• Regular information
- from firms: accounts. budgets, etc.
- from banks: new facilities, rate charges etc.
• No surprises
- from firms: keep to agreed borrowing
- from banks: notification well in advance of changes in
borrowing arrangements

11. What Worries Bank Managers
• Frequent excesses on the account
• Losses
• Lack of financial information
• Developing hard-core borrowing
• Diminishing or rapidly increasing turnover
• Declining margins
• Inability to meet forecasts
• Over-reliance on too few customers or suppliers
• Unavailable directors
• Poor credit control

12. Sources Of Finance
Equity Capital
(public and government buy shares of a business)
Debt Financing
(loans secured from banks, public and government)
Retained Earnings
(profit re-invested in business)

13. Equity
Long-term investment, placed at risk
 Your own money
 The money of family and friends
 Business Angels – investments £10K - £250K
 Venture Capitalists – mainly investments over £2 million
 Stock Markets– mainly used as later stage investment or as an ‘exit route’

14. Equity
• Dilutes ownership
• Dividends may be expected
• Outsiders may want to interfere
• Business angels require growth prospects
• Venture capitalists require significant growth
• Both investors will want an exit route in future
• Both will take a significant proportion of profits
• Both will require detail information

15. FINANCING IN PAKISTAN

16. Access to Finance
Initial
Investment
Expansion/Overhauling
Investment

17. Access To Finance
• Commercial banks apply conservative policies while lending to
SMEs.
• More importantly, the exiting structure of financial sector was
developed to serve medium to large enterprises that are organized as
formal businesses.
• Most banks consider lending to SMEs an unattractive venture due to
a range of objective and subjective factors including ;
• high transaction costs
• SMEs' inability to comply with tangible collateral requirement
• no linkage of financial products with SME sector needs, etc.

18. Access To Finance
The SME sector is not homogeneous, therefore, the attractiveness of an
enterprise to financial institutions varies with SME size, structure of
organization, maturity, industrial sector, etc.
Within the Investment Climate Survey, it was observed that 57 per cent of
new investment for Small and Medium Enterprises and 67 per cent of
working capital finance comes from internal finance or retained
earnings;
only about 7 per cent of funds for investment or working capital come
from banks or other financial institutions.

19. MICRO-FINANCING
NON GOVERNMENTAL ORGANIZATIONS
1. Akhuwat
2. Asasah (Registered under The Companies Ordinance, 1984 ( Non-Profit Company;
Section 42)
3. Kashf Foundation (Registered under The Societies Registration Act, 1860)
Examples of Other MFI
4. Taraqee Foundation (Registered under SECP Comp Ord. 1984)
5. Helping Hand for Relief and Development (HHRD) (Registered under Trust Act 1982)
6. Jinnah Welfare Society (Registered under The Voluntary Social Welfare Agencies
Ordinance, 1961)
7. The Pakistan Microfinance Network (PMN)
8. Orangi Pilot Project
9. Sindh Agricultural and Forestry Workers Coordinating Organization
10. National Rural Support Program
11. Punjab Rural Support Program
12. Sarhad Rural Support Program
13. Orix Leasing Pakistan Ltd.