Bankers are financial experts. They can analyse figures. They can project economic likelihoods regarding what is likely to happen to interest rates, currency values and industry. They are in the business of lending and want to lend. However, they are not technical persons and cannot really evaluate projects being conceived.They cannot usually differentiate between the different methods of production or even opine which is more efficient or cost effective. It is because of this that they rely heavily on project reports in making the lending decision as they are effectively looking for the endorsement of an expert on the viability of the project.Therefore when Rusi Daruwalla meets his bankers - the Manufacturers' Bank, he would be wise to take with him a project report which would support his intention to expand and proves his company would become more efficient.Similarly, if Mr Singh plans a new project to farm black tiger prawns, his proposal would be studied more seriously if he submits a detailedproject report on the manner he intends to farm the prawns. It should detail the land, the kind of ponds that will be constructed, safeguards against diseases, the water available, the soil and the harvests.The reports should also state how the prawns will be marketed - whether it will be sold live (for the Japanese market) or frozen and the financial projections of the enterprise.The conclusions arrived at should be supported by an acknowledged authority on the subject. This makes the lending decision for the Banker relatively easy as he is comfortable in relying on the expertise and wisdom of an expert. He needs this lifeline too for his comfort for if things do go wrong he could state that by basing his decision on the submissions and endorsement of an expert he did what any prudent banker would do and has not therefore been negligent.While submitting a project report both Rusi Daruwalla and Mr Singh should be aware that the banker is not a technical man (usually) and technicalities andengineering niceties usually go above his head (although he would never really admit it). While the tome must be impressive there are several issues that the Banker will zero in on and these must be addressed and addresssed in detail if the loan is to be given the nod.l The project report should address the need for the project and how by implementing it there will be profits for the company. Ideally, it should also state there are very few downsides.l It must speak of the suitability of the land chosen for the project - accessibility to either raw materials or to the end user market or tax concessions and the likes.l It must detail the cycle of production and explain why the method recommended is superior or more cost effective than others.l It must speak or dwell on comparitive advantages such as forward or backward integration or import substitution or even a high demand. This must be supported by statistics. Bankers love statistics and will use these in putting up their proposal forapproval.l The project report should also speak of strengths and weaknesses and then prove in a logical manner how the strengths far outweigh the weaknesses.l The project report should clearly show the costs of the project, the gestation period and the time it would take for it to start repaying the loans taken.l The report should also mention whether the project is exposed to the vagaries of the economic cycle or industry cycles and the effect this will have on the project.l The financials should be given in detail. It should begin with the cost of the project stating from where (and why) the machines will be bought, the maximum cost, the cash flow, leverage and the project's debt service capacity. The banker has to be convinced that even in the worst situation the company can service the debt.I know of a cement manufacturer who, being ambitious, presented a report for the cosntruction of three medium cement plants simultaneously. The projects were good and they were viable. Being ambitious hedecided to construct te three plants simultaneously. It was after he began the construction that the primary markets collapsed and he began to experience cash problems. Bank finance stopped as he was unable to service the loans. At present, he has three unfinished plants into which he has sunk a lot of money. The company is also bankrupt and likely to remain so.l Above all the project report should also clearly state who will run the project and the capability, experience and competence of the persons entrusted with the project.If they have already implemented and successfully run similar projects the banker will derive considerable comfort.In conclusion it has to be emphasised that the project report is at the core of the lending decision. No banker (unless he is a bucanneer) will finance a green field venture without a project report that clearly shows how feasible the project is. It has to address the concern that is dearest to his heart - the repayment and servicing of the funds that he will belending (placing at risk). If Rusi Daruwalla's project report does not address these issues he will find it difficult to get the loan approved.
