THE ROLE OF ACCOUNTANT IN PROJECT FEASIBILITY AND VIABILITY APPRAISAL ( A CASE STUDY OF CASSAVA STARCH PRODUCTION)
Among all other activities of the banks, lending is the most vital banks undertaking which should be carefully emphasized, may be because it is the most profitable undertaking of the banks or its contribution to the economic growth of the country generally.
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On the other hand, borrowers put their faith on the commercial bank towards the borrowing of business loan whenever they are desperately in need of funds.
Al almost all business owners borrow money from time to time. But to be a reasonable and successful loan applicant you will need to convince a lender that you are a reasonable risk bearer. You must explain how you will use the money or loan, how much you need to borrow and you will repay it.
Generally, business owners borrow to finance a start up, an expansion of facilities or the purchase of another company. But regardless of why you went to borrow lenders always want to minimize their own risk. They (lenders) will not lend you money unless you are able to convince them that you will be able to repay the loan. Searching through related literature on the question of borrowing from commercials banks, one finds a two dimensional approach to the problem.
There are those who totally stress on rigid application of the principle of borrowing loan, and there are those advocate that the principle of borrowing loan should apply but not rigidly.
Firstly bank of Nigeria has its own criteria when over they went to issue out loans to its customers. They use the term “paper charms” in assessing their customers involved. In this terms “PAPER CHARMS”. ‘P’ stand for the purpose of the loan. The banks should ascertain the purpose of the loan. This is important because the bank has to follow some specific internal and external operational policy guidelines while lending the purpose of the loan must not be illegal, this is because illegal contracts are void contracts in law. Therefore money land under illegal contract or business are not repayable the lending institution should ascertain whether the requisition is in the performed or less preferred sectors of the economy. The bank must follow the government guidelines in considering the sector to which the proposed loan belong.
‘A’ stands for the amount to be borrowed the borrower will have a certain amount which he intends to borrow in mind. The bank should do its independent calculation to check the adequacy of the amount sought if the amount sought is insufficient, the proportion has to be reconsidered because inadequate funding may lead to incomplete and abandoned project.
Conversely, if it is higher than the financial need of the customer, the lending should be turned down because over lending may lead to misappropriation of funds and consequently difficult in repaying. The borrower will submit a cash budget. Also the memorandum and articles of association of the business have to be submitted to determine the borrowing powers of the directors.
‘P standard for the period the loan will last This refers to how long it will take the customers to repay the loan. A careful examination of the proposed is important because the bank will be in a better position to determine whether the loan a long term or short term loan. If the customer request a short term loan which he will apple in acquisition of a fixed assets, the duration of the loan may be considered inadequate because the period may not be sufficient for the asset to generate enough fund for repayment.
Financial long term projects with working capital usually makes a debt doubtful and in some, causes bad and irrecoverable debt.
‘E’ stands for exchange. This is the rate of exchange as at the true when these loan is granted and the rate it will be during the repayment period. In this situations the bank makes use of time value of money to ascertain the present value of each naira given out in form of loan as against the future value of such naira.
‘R’ stands for the rate. This I also know as the term of loan. It varies considerable from one bank to the other and from one period to another period. The interest rate charged by most of the commercial banks is 5% – 10% or depending on the type of activity of the borrower.
‘CH stands for character. The character of the borrow is of paramount important for this will prove whether the loan is to be granted in his favour. Not if the person in question is of dubious character, his change of receiving the loan is zero but if he is of good character, he stands the chance of getting the loan.
‘R’ stands for repayment programs. The repayment of the advances should come from the income generated form the project. The sources of repayment must be realistic and envious. Where an individual wishes to borrow. In order to access his proposition or statue, the manager should ask for details of his earning and expenditure.
The bank matter the two variables with the view of finding out if the proposed can repay itself or not.
For business enterprises, the advances should be repaid from the future profits. the bank has to ensure that lending is a profitable one before embarking on it. The lending 9bank) will ask for the following financial documents which will guide him in analysis the proposal
- A cash budget
- Projects profit and loss account
- Projected balance sheet.
‘m’ stands for mandate. The mandate of the person involve and the profitability of the investment he wants to carryout is of paramount important to the lending banks.
‘S’ stands for security. This factor is considered last security is what the bank will fall back to if all ones considered fails to work according to expectations and repayment becomes doubtful. The following securities are acceptable to banks for lending land, insurance policies, tock and shares and guarantees etc.
In line with those who adduce argument that the principle of bank lending be followed up strictly is Egbo. Is major, who write-up concept of developmental lending” emphasized on the factors to induce investors to be honest and prudent in their management of the business. Also the extent to which the bank involves itself in lending is determined by the nature and character of the investment or project.
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