1
TABLE OF CONTENTS
1. DEFINITIONS AND ABBREVIATIONS ........................................................................ 2
2. GUIDING POLICY AND PRINCIPLES ......................................................................... 4
3. FLOW DIAGRAM ......................................................................................................... 7
4. ACCOUNTABILITY AND RESPONSIBILITIES .......................................................... 14
5. SUPPORTING NARRATIVE ...................................................................................... 17
6. SUPPORTING sefaLAS TRANSACTIONS ................................................................ 30
7. ANNEXURES ............................................................................................................ 42
7.1. ANNEXURE 1 - CHECKLIST FOR NEW APPLICATIONS ......................................... 42
7.2. ANNEXURE 2 - TRANSUNION REPORT .................................................................. 43
7.3. ANNEXURE 3 - LETTER OF DECLINE (NO LETTER OF ARRANGEMENT) ............ 46
7.4. ANNEXURE 4 - LETTER SECURIING APPOINTMENT FOR DD .............................. 47
7.5. ANNEXURE 5 - LETTER OF DECLINE (DUE DILIGENCE UNSATISFACTORY) ..... 48
7.6. ANNEXURE 6 - PIM REPORT/EXAMPLE OF INVOICE ............................................ 49
7.7. ANNEXURE 7 – LETTER OF DECLINE .................................................................... 50
7.8. ANNEXURE 8 – LETTER OF APPROVAL................................................................. 51
7.9. ANNEXURE 9 – MEMO TO COMMITTEE ................................................................. 52
7.10. ANNEXURE 10 - FICA CHECKLIST………………………………………………………56
7.11. ANNEXURE 11 - BASIC ASSESSMENT REPORT……………………………………..70
7.12. ANNEXURE 12 – DUE DILIGENCE: PEER REVIEW GUIDELINES…………………..75
7.13. ANNEXURE 13 - DUE DILIGENCE: CONTRACT BASED FINANCE CHECKLIST….81
7.14. ANNEXURE 14 - DUE DILIGENCE: TERM FUNDING CHECKLIST…………………..90
7.15. ANNEXURE 15 – CREDIT SUBMISSION REPORT (TEMPLATE)………………...…104
7.16. ANNEXURE 16 – PRODUCT GUIDELINES………………………………………….…124
2
1. DEFINITIONS AND ABBREVIATIONS
Abbreviation / term Description / Definition BA Basic Assessment
BA Report The report that is compiled by the IA
following the BA exercise. The purpose of
the report is to summarise the nature of the
application and give basic (but critical)
information to the investment team before
commencing with the due diligence process.
CA Credit Analyst from Credit Management Unit
Checklist A list of items required, things to be done, or
points to be considered, used as a reminder.
It helps to ensure consistency and
completeness in carrying out a task. A basic
example is the "to do list."
Contract Based Finance Contract based finance is working capital for
enterprises awarded tenders or contract
work by well-established institutions to
supply goods and services.
Due Diligence (‘DD’) Due diligence is an investigation into the
economic merit of an application, which
includes all aspects that would influence the
sustainability and profitability of the entity
whilst also securing sefa’s position.
FICA Financial Intelligence Centre Act 28 of 2001
HoC Head of Credit
HoPIM Head of Post Investment & Monitoring
HoR Head of Regions
IA Investment Analyst
IO Investment Officer
LC Legal Counsel
RA Regional Administrator
Related Party Transactions Related party transactions is defined as
transactions involving a director, senior
manager or significant shareholder of the
enterprise or an entity in which the enterprise
3
has a significant shareholding, as well as a
connected person of any of the
aforementioned persons.
RM Regional Manager
sefaLAS sefa – Loan Administration System
Term Funding Term funding will comprise instalment sale;
revolving credit and term loans.
4
2. GUIDING POLICY AND PRINCIPLES
This guide follows the steps that should be taken in the Due Diligence process, a description
of proposed actions, the tools and templates available to carry out each step. The objective
is to develop a harmonized framework for clear and unambiguous procedures that can be
applied in all situations.
This document contains both background information, overview of the available tools and
templates as well as a number of Annexures that contain the actual templates used during the
Due Diligence processes.
The checklists are a guideline. The checklist items for each DD must be prioritised prior to
the commencement of the DD. The Due Diligence checklists (available on intranet) can be
used to complete the DD (credit submission report template).
DD’s are professional processes to be conducted with the relevant expertise and adapted as
required. Due Diligence processes will be split in terms of Contract Based Finance and Term
Funding transactions.
The timeline for contract based finance transactions is 10 working days from Basic
Assessment date to approval date. The timeline for Term Funding is 22 working days from
Basic Assessment date to approval date. The Direct Lending team (including Experts where
required) performs the DD within 15 working days for Term Funding and 5 working days for
Contract Based Finance.
The abovementioned timelines exclude the waiting period for outstanding information from the
client.
The client visit usually take 1 day but it could be longer if it is a complex transaction.
Contract Based Finance Term Funding Enquiry 0 working days 0 working daysBasic Assessment 2 working days 3 working daysDue Diligence 5 working days 15 working daysCredit Assessment 2 working days 3 working daysCredit Committee 1 working days 1 working days
Total 10 working days 22 working days
5
If the recommendation for the funding is approved as presented to the Credit Committee the
legal agreements should be sent to the client within 24 hours of approval.
Communication to clients are of vital importance as it ensures that the client is kept abreast of
exactly where they are in the application process. This communication has to be consistent
from applicant to applicant and therefore templates of standard letters have accordingly been
developed.
We will further investigate automation options of the DD checklist and ‘SMS’ notification
functionalities.
The following principles are applicable to all Due Diligence processes:
All documents received during the DD stage need to be saved on sefaLAS under the
respective clients documents and named correctly. The physical file of original documents
are to be kept safely by the IO.
All interactions with clients shall be confirmed via email and it needs to be recorded on
sefaLAS as notes.
Applications can be rejected/declined at any stage during the process and it does not need
to go through the whole DD process.
FICA must be completed prior to credit submission report.
sefa will conduct interviews with the applicants, stakeholders who either have interest or
have an influence in the applicant’s business.
When dealing with an existing client on new/repeat funding transactions, PIM comments
on the client’s performance must be included in the credit submission report.
IO needs to conduct a media (www.google.com) search on all applicants. IO needs to be
mindful of Anti-Money Laundering or suspicious transactions in all DD processes and
report all suspicious transactions to RM.
Related party transactions must be considered carefully and listed and discussed in the
credit submission report.
All tasks on sefaLAS to be completed by relevant officials at all stages of the DD
processes.
All DDs shall be reviewed at least by one other IO and the RM prior to submission. The
DD checklist to be signed off by IO and RM as proof of review and filed on sefaLAS. A
copy of the signed DD checklist to be kept on file.
At the time of Credit Committee submission, all relevant Annexures and schedules to the
credit submission report must be saved on sefaLAS.
6
sefaLAS needs to be updated with the credit submission report.
The final version of the Excel financial model must be saved on sefaLAS.
When submitting a credit submission report with financials, the actual balance
sheet/income statement and notes must be on separate pages as Annexures. Where
available, all applications should include main page(s) of the Balance Sheet, Income
Statement and Cash Flow Statement.
Requests for information to clients need to be in writing with a cut-off date. The default cut-
off period should be ten (10) working days. If no information is provided before the cut-off
date then the client needs to be informed in writing that his application has been closed,
but he/she is welcome to re-apply in future once the information is available.
The effective dates of the cut-off period will communicated to the client. Five (5) days prior
to the lapse of the cut-off period the client will be reminded in writing in the event that no
response had been received with respect to any request made.
The DD checklist will be used a tool to complete the DD process and for the purposes of
the credit submission report, to guide the officials to successfully conduct the DD
processes.
The RM and IO can agree to exclude certain items, if not applicable, from the DD checklist.
This needs to be signed off by both parties and uploaded on sefaLAS.
Role of Head of Regions
The role of Head of Regions insofar as the due diligence processes will amongst others be as
follows:
To provide assistance on complex transactions and sign them off.
One of the Head of Regions (alternate week) will sit at the committee and identify area(s)
of intervention in terms of quality improvements, policy direction, policy interpretation,
feedback to the Regions on committee proceedings, etc.
To monitor overall turnaround times.
To be involved in deal origination.
To be involved in the negotiation of complex transactions.
8
Co
nd
uct
Du
e D
ilig
en
ce
( D
D )
& P
re
pa
rin
g t
he
Su
bm
issio
n f
or
Ap
pro
va
l
Inv
estm
en
t O
ffic
er
Re
gio
nal
Ad
min
istr
ato
r
Perform Basic
Assessment
Receives basic assessment report
and supporting document
Reviews the BA report
Checks if all items in the checklist are
provided
All itemsprovided
Submits the request for credit check to
be performed
Missing items
Advises the applicant of missing
items
Conducts the credit check
Submits the credit check report
Checks if there are judgments, defaults or notices against applicant profile
Judgment or
Default
Requests the applicant to provide
letter of payment arrangement
Notices
Requests the clarification from
the applicant
Due Diligence
(2)
Checks if the applicant is a pre-existing sefa client
Obtains the client s PIM report
The applicant is informed in writing
END
Existing Client
Bad Report
Good Report
Letter Sent
9
Co
nd
uct
Du
e D
ilig
en
ce (
DD
) &
Pre
pa
rin
g t
he
Su
bm
issi
on
fo
r A
pp
rova
l
Inv
est
me
nt
Off
ice
rR
egio
nal
Ad
min
istr
ato
rIn
ve
stm
en
t A
naly
st
Letter provided
Checks if the applicant honoured
the arrangement
No letter provided
Application declined
Sends the applicant letter of decline
More than 1 month
Checks the date at which arrangement letter was sent or
acknowledged
Less than 1 month
Not honoured
The Applicant is informed in writing
HonouredSubmits the request
for FICA verifications
Conducts the FICA verifications on the
applicant
Signs off FICA verifications
document and checklist
Provides verifications
document and checklist
Due Diligence
(1)
Due Diligence
(3)
Letter of Decline
10
Cond
uct D
ue D
ilige
nce
( DD
) &
Pre
parin
g th
e Su
bmis
sion
for A
ppro
val
Inve
stm
ent O
ffic
erRe
gion
al
Adm
inist
rato
rIn
vest
men
t An
alys
tRe
gion
al
Man
ager
Hea
d: R
egio
ns
Checks if the applicant is a
politically exposed person (PEP)
PEPapplicant
Notify the Regional Manager and Head
of Regions
Non-PEPapplicant
Invite experts in the field/industry (if
deemed necessary)
Completes the PEP Form
Sends the completed form to
the Head of Regions
Sends to the relevant approval
committee
PEP successfully noted
Arranges for site visit
Arrange for client to visit sefa offices or arrange to visit the intended business
premises
Reviews business plan, historical and/
or projected financials
Due Diligence
(2)
Due Diligence
(4)Conduct client introduction
Prepares Financial Model
11
Cond
uct D
ue D
iligen
ce (
DD )
& Pr
epar
ing t
he Su
bmiss
ion
for A
ppro
val
Inve
stmen
t Offi
cer
Regio
nal
Adm
inist
rato
rIn
vestm
ent
Analy
stRe
giona
l M
anag
erHe
ad: R
egio
nsLe
gal A
dviso
r
Checks the type of required financing (as indicated in the application form)
Contract Based Finance
Performs due diligence in line with
contract financing checklist
Term Funding
Performs due diligence in line with
term funding checklist
Prepares notes/questions for due diligence session
No missinginfo
Checks if there is critical information
that is missing
Requests information in
writing
Info provided
Receives the requested
information
Info notprovided
The applicant is notified in writing
Sends the legal documents for
vetting
Vets the legal documents
Provides the legal report
Receives legal report and reviews
it
Visits the site or meets with the
client
Signs off the due diligence checklist
and sends to RM for sign off
Due Diligence
(3)
Due Diligence
(5)
Invites the expert in the field/industry (if deemed necessary)
END
Letter of Decline
12
Con
duc
t D
ue D
ilige
nce
( D
D )
& P
rep
arin
g th
e Su
bmis
sion
for
App
rova
l
Inve
stm
ent
Off
icer
Reg
ion
al
Ad
min
istr
ato
rIn
vest
men
t A
nal
yst
Reg
ion
al
Man
ager
Drafts the credit submission report
Incorporates the legal report
Submits the credit submission report
for peer review
Reviews the credit submission report
Submits the feedback on credit submission report
Receives feedback from peer
Investment officer and regional
manager
Updates the credit submission report
as per feedback
Signs off the due diligence reports and submits to
regional manager for sign off
Signs off the credit submission report
Conduct Credit
Assessment
Submits the credit submission report
to Credit Management
Due Diligence
(4)
13
Cond
uct D
ue D
ilige
nce
( DD
) &
Pre
parin
g th
e Su
bmis
sion
for A
ppro
val
Inve
stm
ent O
ffic
erRe
gion
al
Adm
inist
rato
rIn
vest
men
t An
alys
tRe
gion
al M
anag
erCr
edit
Ass
essm
ent
Interact with Credit Management Unit
Receives feedback from Credit
Management Unit
Updates the due diligence report as
per feedback
Due Diligence
(5)
Memo for Resubmission
Deferred
Inform the client of the decision
Letter to Client
Reviews the final due diligence report and includes credit
assessment comments
Reviews the due diligence report for credit assessment
Provides feedback to Direct Lending
Submits final report to Credit Committee
Credit Committee
Decision Record
ApprovalLetter to Client
Decline
14
4. ACCOUNTABILITY AND RESPONSIBILITIES
A = Accountable / R = Responsible / C= Consulting.
Activity / Task linked to flow
diagram HoPIM RA IA IO RM HoR HoC LC
1. Receives BA report and
supporting documents R A
2. Reviews the BA report and
supporting documentation R A
3. Checks if all items in the
checklist are provided R A
4. Advises the applicant of missing
items R A
5. Submits the request for credit
checks to be performed R A
6. Conducts credit checks R A A
7. Submits the credit check report R A
8. Checks if there are judgements,
defaults or notices against the
applicant
R A
9. Requests the applicant to
provide letter of arrangement R A
10. Checks the date at which the
arrangement letter was
formalised or acknowledged
R A
11. Checks if the applicant honoured
the arrangement R A
12. Submits the request for FICA
verification R A
13. Conducts FICA verification R A
14. Signs off FICA verification
document and checklist R A
15. Checks if the applicant is a pre-
existing sefa client R A
15
Activity / Task linked to flow
diagram HoPIM RA IA IO RM HoR HoC LC
16. Obtains a PIM report C R A
17. Checks if the applicant is a
Politically Exposed Person
(“PEP”)
R A C
18. Invites experts in the
field/industry (if deemed
necessary)
R A
19. Reviews the business plan,
historical and/or projected
financials
R A
20. Prepares financial model R A
21. Conduct client introduction R A
22. Arranges for site visit R A
23. Checks the type of required
financing R A
24. Performs due diligence in line
with checklist R A
25. Checks if there is critical
information outstanding R A
26. Requests outstanding
information from the applicant in
writing
R A
27. Prepares notes/questions for due
diligence session R A
28. Sends legal documents for
vetting R A C
29. Visits the site or meets with the
applicant R A
30. Sign-off of the Due Diligence
checklist R A
31. Draft credit submission report R A
32. Submits the credit submission
report for Peer Review R A
16
Activity / Task linked to flow
diagram HoPIM RA IA IO RM HoR HoC LC
33. Reviews the credit submission
report R A
34. Receives feedback from peer IO
and RM R A
35. Updates the credit submission
report as per feedback R A C
36. Submits the credit submission
report to RM R A
37. Submits the credit submission
report to Credit Management R A C
38. Interact with Credit Management R A C C
39. Credit Committee Submission R A
40. Deferrals from Credit Committee R R A
17
5. SUPPORTING NARRATIVE
The flow diagram items have been numbered and could be followed for logical flow. The table below will refer to the flow diagram items in logical
order.
Activity / Task linked to flow
diagram
Narrative Tools Document output (reference to
Annexure where the
format of the
document is
provided)
Turnaround time
1. Receives BA report and
supporting documents
IO receives BA report, which
will include the application
number and supporting
documents.
BA report
2. Checks if the applicant is a pre-
existing sefa client IO checks if the applicant is a
pre-existing client.
sefaLAS
3. Obtains a PIM report
If the applicant is a pre-existing
client, IO obtains a PIM report.
If the PIM report has adverse
information on the client’s
performance, the IO rejects the
application.
Account Statement
18
If the PIM report has favourable
information, the IO performs the
next step.
4. Reviews the BA report and
supporting documentation IO reviews the report.
5. Checks if all items in the
checklist list are provided
IO checks for missing items
against the checklist.
sefaLAS checklist
New Application
checklist (Annexure
1)
Ticked sefaLAS
checklist
Signed off New
Application
checklist
6. Advises the applicant of missing
items
If there is missing or
outstanding items, IO advises
the applicant.
Cut-off for the applicant to
submit outstanding items is 10
working days.
If the applicant fails to submit
within the specified time,
application is closed.
Notes on sefaLAS
7. Submits the request for credit
checks to be performed IO submits the request for credit
checks to be performed by IA.
8. Conducts credit checks IA conducts the credit checks. www.transunion.co.za TransUnion Report
(Annexure 2)
19
Credit checks are to be
provided within 24 hours.
IA provides the credit report to
IO.
9. Submits the credit check report
IA submits the credit check
report to IA.
IA creates a note on sefaLAS
that a credit check has been
performed on the client.
Notes on sefaLAS
10. Checks if there are judgements,
defaults or notices against the
applicant
IO checks for judgement,
defaults or notices in the report.
If there are Judgements or
Notices, IO requests for letter of
arrangement.
If there are notices on the credit
report, IO requests clarification
from the applicant.
Decline Letter (due to
letter of arrangement not
in place) (format)
(Annexure 3)
Signed off Decline
letter.
Notes on sefaLAS.
11. Requests the applicant to
provide letter of arrangement
Requests the applicant to
provide the letter of
arrangement in writing.
Cut-off date for the submission
of the arrangement by the client
is 10 working days.
20
If the client does not provide a
letter of arrangement within 10
working days, the application is
rejected as unsatisfactory.
IO sends out a letter of decline
to the client.
12. Checks the date at which the
arrangement letter was
formalised or acknowledged
IO checks the date at which the
letter of arrangement was
formalised.
If the letter of arrangement was
formalised less than a month IO
proceeds to the next step.
13. Checks if the applicant honoured
the arrangement
If the letter of arrangement was
formalised more than a month
prior, IO checks if the applicant
honours the arrangement.
If the applicant has not been
honouring the arrangement, IO
declines the application.
14. Submits the request for FICA
verification IO submits a request for FICA
verification to IA.
FICA Checklist
21
15. Conducts FICA verification IA conducts the FICA
verification on the applicant(s)
and the company.
16. Signs off FICA verification
document and checklist
IO signs off the FICA
verification and checklist.
IO files the signed off FICA
checklist on sefaLAS.
Signed off FICA
Checklist
17. Checks if the applicant is a
Politically Exposed Person
(“PEP”)
For new applicant, IO checks if
the applicant(s) is PEP.
If applicant is PEP, IO notifies
the RM.
RM completes the PEP form.
RM submits PEP form to HoR.
RM and HoR signs off the PEP
form. HoR submits the PEP
form to the relevant approval
committee(s).
PEP is successfully noted.
Signed copy of PEP is filed on
sefaLAS.
The reporting of PEP runs
concurrently with all the
remaining processes.
sefa’s Procedures &
Guidelines for Politically
Exposed Persons
(“PEP”)
sefa Credit Policy.
Notes on sefaLAS
Signed off PEP form
22
18. Invites experts in the
field/industry (if deemed
necessary)
In the event that the transaction
involves specialised fields (e.g.
Agriculture, I.T., Mining), the IO
needs to send an e-mail to RM
and HoR seeking advice on the
transaction (not mandatory).
19. Conduct client introduction
IO introduces himself/herself to
the client for preparation to the
Due Diligence stage.
Letter to secure
appointment for DD with
the client (format)
(Annexure 4)
Notes on sefaLAS
20. Reviews the business plan,
historical and/or projected
financials
IO reviews the business plan,
historical and/or projected
financials and all relevant
industry literature.
21. Prepares financial model
IO prepares the financial model
and make notes on the
variances.
IO prepares questions to be
included in the DD session with
the client
Financial Model Filed Financial
Model on sefaLAS
22. Arranges for site visit For new business or start-up, IO
arranges for the applicant to
visit sefa offices or arranges to
Notes on sefaLAS
23
visit the intended business
premises.
For existing business, IO
arranges for the site visit to the
applicant’s premises.
23. Checks the type of required
financing.
IO checks the type of financing
required (as indicated in the
application form & BA report).
Product Guidelines
24. Performs Due Diligence in line
with checklist
For contract based finance
transactions, IO performs the
due diligence in line with
contract based finance DD
checklist.
For term funding transactions,
IO performs DD in line with term
funding DD checklist.
IO and RM signs off the DD
checklist.
Contract Based Finance
DD checklist
OR
Term Funding DD
checklist
Signed off Contract
Based Finance DD
checklist
OR
Signed off Term
Funding DD
checklist
25. Checks if there is critical
information outstanding
IO checks if there is critical
information missing.
IO requests the information
from the client in writing.
24
26. Requests outstanding
information from the applicant in
writing
IO requests for outstanding
information to be provided
within 10 working days.
In the event that the applicant
fails to provide critical
information the application is
declined.
Notes on sefaLAS
27. Prepares notes/questions for
due diligence session
IO prepares notes/questions for
DD session.
IO sends a list of questions to
the applicant.
The DD session with the client
is to be scheduled within 10
working days.
Letter to secure
appointment for DD
Notes on sefaLAS
28. Sends legal documents for
vetting
IO sends legal documents
(contracts, letters of
undertaking, letters of intent,
etc.) to legal department for
vetting.
Legal Department reviews the
legal documents and sent
comments back to IO via e-mail
and make notes on sefaLAS.
Notes on sefaLAS
25
29. Visits the site or meets with the
applicant
IO to interview the applicant/s
on the business for which the
funding is required and
requesting supporting
documentation where required.
Own Car;
Laptop; and 3G
Notes on sefaLAS
30. Sign-off of the DD checklist
IO signs off the DD checklist.
The RM and IO can agree to
exclude certain items, if not
applicable, from the DD
checklist.
This needs to be signed off by
both parties and uploaded on
sefaLAS.
31. Draft credit submission report
IO drafts credit submission
report incorporating input from
other support units (e.g. Legal,
Agricultural Specialist, IDC).
Credit submission report
(format)
32. Submits the credit submission
report for Peer Review
The IO arranges through an e-
mail calendar a peer review
session for 3 to 4 hours with one
other IO (who was not involved
in the DD process) at the region
and the RM.
Peer Review Guidelines Signed off Peer
Review Guidelines
26
33. Reviews the credit submission
report
Peer reviews the credit
submission report in line with
Peer Review Guidelines.
IO and RM signs off the Peer
Review Guidelines.
Signed off Peer
Review Guidelines
and notes
34. Receives feedback from peer IO
and RM
IO receives feedback from peer
review session.
Peer Review
Feedback notes on
sefaLAS
35. Updates the credit submission
report as per feedback
IO updates the credit
submission report as per
feedback.
36. Submits the credit submission
report to RM
IO submits the credit
submission report to RM for
final review.
Credit submission
report on sefaLAS
37. Submits the credit submission
report to Credit Management
Unit
RM submits the credit
submission report to CA at
Credit Management Unit.
Credit submission report
(format)
Credit submission
report on sefaLAS
38. Interact with Credit Management
Unit
CA reviews the credit
submission report.
CA sends risk comments to IO.
IO and RM interacts with CA on
risk issues.
Notes on sefaLAS
27
39. Credit Committee Submission
Once all issues from credit
management have been
addressed, the report is
submitted to the relevant credit
committee.
IO ensures that all required
documentation and any
supporting documentation is
uploaded on sefaLAS.
IO keeps all documents relating
to the DD on physical file.
IO and RM presents
(physically/via teleconference
or video (Lync or Skype) to the
committee).
At the Credit Committee
meeting, IO needs to do a short
introduction and the team (i.e.
IO, RM and HoR) needs to
respond to questions raised by
the Committee.
In case of approval with/without
conditions, IO informs the
Letter of Approval
(format)
OR
Letter of Decline
(format)
Letter of Approval
OR
Letter of Decline
AND
Decision Record
28
applicant in writing within 48
hours after the meeting.
In case of approval a decision
record to be signed off by the
latter within2 working days after
the Credit Committee meeting.
IO to inform the successful
applicant in writing of the next
process of signing of legal
documents.
In case of declined application,
IO needs to inform the applicant
in writing of the Credit
Committee decision.
40. Deferrals from Credit Committee
In the event that the deal is
deferred by the committee due
to insufficient information or any
other reason, IO interacts with
client to obtain the missing or
outstanding information or
augment the submission for
submission.
Resubmission Memo
(format)
Notes on sefaLAS
Signed off
Resubmission
Memo
29
On resubmission IO needs to
prepare a Memo highlighting
the concerns raised by the
committee and how these were
subsequently addressed.
30
6. SUPPORTING sefaLAS TRANSACTIONS
Activity / Task linked
to flow diagram
SefaLAS screen print
Complete tasks
• Conduct FICA
KYC
procedures
• Conduct Credit
checks
31
Complete Tasks
- Perform due
diligence in
accordance
with the due
diligence
templates
- Ensure
compliance
with
application
checklist
35
Due diligence
Satisfactory/
Unsatisfactory
Change status to due diligence satisfactory/unsatisfactory
40
Update Jobs Created,
Permanent,
Temporary Jobs,
Skilled Jobs, Unskilled
Jobs, Ownership (in
terms of racial
composition),
Provincial
Classification, Age
Group and Inside
NCA or Outside NCA.
1
Client Identification and Verification Checklist
As an accountable institution as defined by FICA, sefa will have to comply and adhere to certain stringent requirements, which include:
Identifying all clients; Verifying all information gathered in the identification process; Keeping records of all this information and documentation.
Acceptability of Verification sefa may only accept residential verification documents that are less than three months old when issued monthly e.g. monthly utility bills/retail accounts statements or less than a year old if issued annually, at the date of verification. Affidavits and Declarations In instances where the customer is unable to provide sefa with the residential address verification document, an affidavit or a declaration in the prescribed circumstances provides sufficient verification of the customer’s residential address. Difference between an affidavit and declaration
An affidavit is a sworn statement. The person making the affidavit is required to appear before a Commissioner of Oaths and attest to the correctness of the information under oath. A declaration has the same effect as an affidavit but the person making the declaration is not required to take an oath. Where a declaration is utilized, the person making the declaration is required to provide sefa with an acceptable form of proof of residence. When will an Affidavit or declaration be acceptable?
An affidavit or declaration for verification of residential address will be accepted where the client or prospective client is:
A co-habitant, sub-lessee on a property where a separate utility bill is not provided to that person;
A spouse/partner residing at the same residential address as the property owner or tenant;
An employee residing on an Employer’s property A youth residing in the same residential address as the property owner or primary
tenant.
2
IDENTIFICATION AND VERIFICATION REQUIREMENTS CHECK LIST South African Citizens and Residence Customer type Information required Verification documentation Comments South African citizens and residents
Full name
Date of Birth; and
Identity number
Primary Identification
Green bar-coded identity document.
Residential address Anyone of the following valid documents reflecting the clients’ name and address:
Utility bill (municipality water & lights account or Property
Managing Agent Statement;
Bank statement from the bank on an official bank
documentation/form;
Recent signed lease or rental agreement;
Municipal rates and taxes invoice
Account statement from a service provider registered in
terms of the National Credit Act;
Telephone or cellular telephone account;
Official SARS document (Not E Filing documentation);
Valid television licence
Television licence renewal confirmation letter;
Subscription TV (e.g. Multichoice) statement;
Home loan statement from another financial institution;
3
Customer type Information required Verification documentation Comments Long/short term insurance policy documents, from another
Financial Service Provider;
Motor Vehicle registration/licence documents;
Municipal council letter;
Body corporate/governing body letter or statement;
Official employer letter for employees resident on the
company/institution premises;
Physical site visit conducted for verification purposes;
Tribal authority letter;
Affidavit to confirm residential address by Co-habitant,
Home Owner or Parent;
Declaration of residential address employer where the
employer resides on the Employer’s property;
Declaration of residential address by co-habitant, home
owner or parent.
Foreign Nationals Full names;
Date of birth
Passport number;
Nationality
Primary Identification
Valid passport
Residential address
Anyone of the following valid documents reflecting the clients’ name and physical address:
Utility bill (municipality water & lights account or Property
Managing Agent Statement;
4
Customer type Information required Verification documentation Comments Bank statement from the bank on an official bank
documentation/form;
Recent signed lease or rental agreement;
Municipal rates and taxes invoice
Account statement from a service provider registered in
terms of the National Credit Act;
Telephone or cellular telephone account;
Official SARS document (Not E Filing documentation);
Valid television licence
Television licence renewal confirmation letter;
Subscription TV (e.g. Multichoice) statement;
Home loan statement from another financial institution;
Long/short term insurance policy documents, from another
Financial Service Provider;
Motor Vehicle registration/licence documents;
Municipal council letter;
Body corporate/governing body letter or statement;
Official employer letter for employees resident on the
company/institution premises;
Physical site visit conducted for verification purposes;
Tribal authority letter;
Affidavit to confirm residential address by Co-habitant,
Home Owner or Parent;
5
Customer type Information required Verification documentation Comments Declaration of residential address employer where the
employer resides on the Employer’s property;
Declaration of residential address by co-habitant, home
owner or parent.
Sole traders Full names;
Date of birth
Identity number if a South African
citizen or resident;
Nationality and passport number if
a foreign national.
See requirements in the tables for individuals and Foreign
Nationals.
Residential and business address
(both to be verified by separate
documents);
Business name (operating name)
See requirements in the tables for individuals and Foreign
Nationals.
Close Corporation Registered name;
Name under which the business is
conducted (Trade name);
Registration number;
Registered address
Most recent version of the founding statement and
certificate of Incorporation (form CK1), specifying the
controlling members; OR
Amended founding statement (form CK2),OR
Independently obtained CIPC certificate of confirmation.
The Physical address from which
the Close Corporation operates. If
multiple addresses, the street
address of the office seeking the
business relationship and Head
6
Customer type Information required Verification documentation Comments Office address must be obtained
and verified;
NB: In the event that the business
address and the physical address is
one and the same, then one
document confirming and indicating
as such is acceptable
Full names, date of birth and identify
number (nationality of a foreign
national), residential address and
contact particulars:
Each member;
The mandate officials who are
authorised to establish a business
relationship or enter into transaction
as per resolution
South African Companies Registered name;
Name under which the business is
conducted (Trade name);
Registration number;
Most recent version of the certificate of incorporation (form
CM1) and notice of registered office and postal address
(from CM22) nearing the stamp of the registrar of the
companies and signed by the company secretary
Independently obtained CIPC certificate of confirmation.
The physical address which the
company operates.
Anyone of the following valid documents reflecting the clients’ name and physical address:
7
Customer type Information required Verification documentation Comments If multiple addresses, the street
address of the office seeking
financial assistance.
Head Office address must be
obtained and verified
NB: In the event that the head office address and operational address is one and the same, then one document confirming and indicating as such is acceptable.
Utility bill (municipality water & lights account or Property
Managing Agent Statement;
Bank statement from the bank on an official bank
documentation/form;
Recent signed lease or rental agreement;
Municipal rates and taxes invoice
Account statement from a service provider registered in
terms of the National Credit Act;
Telephone or cellular telephone account;
Official SARS document (Not E Filing documentation);
Valid television licence
Television licence renewal confirmation letter;
Subscription TV (e.g. Multichoice) statement;
Home loan statement from another financial institution;
Long/short term insurance policy documents, from the
Financial Service Provider;
Attorney/Accountant/Auditor letter on
Attorney/Accountant/Auditor letterhead confirming the
address of the client;
Motor Vehicle registration/licence documents;
Physical site visit conducted for verification purposes;
Tribal authority letter;
Affidavit from an authorised official confirming the
operational address and trading name of the company;
8
Customer type Information required Verification documentation Comments Full names, date of birth and identify
number (nationality of a foreign
national), residential address and
contact particulars of:
The manger/CEO of the company;
The mandate officials authorised to
establish a business relationship or
enter into transaction as per
resolution;
The natural person, legal person,
partnership or trust holding 10% or
more, of the voting rights at a
general meeting of the company.
See requirements in the tables for individuals and Foreign
Nationals – in respect of members and mandate officials.
A resolution/mandate authorising the person as mandate
officials is required.
NB: It is not necessary to verify the residential address and contact particulars of these persons – however it is necessary to obtain and record the information. If a shareholder is not a natural person, the identification and Verification requirements for the entity or the business arrangement into which they fall needs to be applied.
South African Listed Companies
Registered name;
Registration number.
The physical address from which
the company operates; and
If multiple addresses, the street
address of the office seeking the
business relationship; and
The Head Office address must be
obtained
This information need to be verified, only obtained and
recorded.
This information need to be verified, only obtained and
recorded.
9
Customer type Information required Verification documentation Comments Other Legal Persons (Inclusive of schools & stockvels )
Name of legal entity: and
Legal form
Constitution and other founding document in terms of
which the legal person is created;
If a founding document or constitution cannot be provided,
then declaration by all mandated officials authorised to
establish a business relationship on behalf of the entity,
that there is no constitution or founding document.
Full names, date of birth and identity
number (nationality if foreign
national), residential address and
contact particulars of:
The mandate officials authorise to
establish a business or enter into a
transaction
Refer to the sections relating to the individuals who are
South African citizens and foreign nationals and
Resolution/mandate authorising the mandate officials
( It is not necessary to verify the residential address and contact particulars of these persons)
Address from which the entity
operates.
Anyone of the following valid documents reflecting the clients’ name and physical address:
Utility bill (municipality water & lights account or Property
Managing Agent Statement;
Bank statement from the bank on an official bank
documentation/form;
Recent signed lease or rental agreement;
Municipal rates and taxes invoice
Telephone or cellular telephone account;
Official SARS document (Not E Filing documentation);
Valid television licence
10
Customer type Information required Verification documentation Comments Television licence renewal confirmation letter;
Subscription TV (e.g. Multichoice) statement;
Home loan statement from the financial institution;
Long/short term insurance policy documents, from the
Financial Service Provider;
Attorney/Accountant/Auditor letter on
Attorney/Accountant/Auditor letterhead confirming the
address of the client;
Motor Vehicle registration/licence documents;
Physical site visit conducted for verification purposes;
Confirmation by member of informal bodies
Constitution or founding document or declaration by all
mandate officials authorised to establish a business
relationship
Tribal authority letter;
Partnerships Name of partnership Partnership agreement in terms of which the partnership
was formed;
Declaration physically signed by all partners confirming
that there is no partnership agreement
Full names, date of birth and
identity number (nationality foreign
national), of
Every partner;
Every member of a partnership
Refer to the sections relating to individuals who are South
African citizens and foreign nationals
And
11
Customer type Information required Verification documentation Comments The mandated officials who are
authorised to establish a business
relationship or enter into a
transaction; and executive control
over the partnership.
Resolution/mandate authorising the mandate officials
If a partner is not a natural person, the entity must be
identified as per the mandatory information for the category
of client with which it falls
Business address
In the event that the partnership does
not have a business operating
address, the address of at least one
partner must be provided.
Anyone of the following valid documents reflecting the clients’ name and physical address:
Utility bill (municipality water & lights account or Property
Managing Agent Statement;
Bank statement from the bank on an official bank
documentation/form;
Recent signed lease or rental agreement;
Municipal rates and taxes invoice
Telephone or cellular telephone account;
Official SARS document (Not E Filing documentation);
Valid television licence
Television licence renewal confirmation letter;
Subscription TV (e.g. Multichoice) statement;
Home loan statement from the financial institution;
Long/short term insurance policy documents, from the
Financial Service Provider;
12
Customer type Information required Verification documentation Comments Attorney/Accountant/Auditor letter on
Attorney/Accountant/Auditor letterhead confirming the
address of the client;
Motor Vehicle registration/licence documents;
Physical site visit conducted for verification purposes; Trusts Trust name;
Trust number
Address of the Master of the High
Court where the trust is registered;
and
Particulars of names beneficiaries,
details of how the beneficiaries a
determined.
Letter of Authority/Authority by Master (for SA trusts);
Trust Deed; and
Resolution/mandate authorising the mandated officials
where available
Business address
Obtain Residential address
details of:
• Each trustee;
• Founder;
• Each named
beneficiary
• The mandated officials
authorised to establish
a business
Anyone of the following valid documents reflecting the clients’ name and physical address:
Utility bill (municipality water & lights account or Property
Managing Agent Statement;
Bank statement from the bank on an official bank
documentation/form;
Recent signed lease or rental agreement;
Municipal rates and taxes invoice
Telephone or cellular telephone account;
Official SARS document (Not E Filing documentation);
13
Customer type Information required Verification documentation Comments relationship or enter into a
transaction as per
resolution / signing instruction /
application form/mandate
Valid television licence
Television licence renewal confirmation letter;
Subscription TV (e.g. Multichoice) statement;
Home loan statement from the financial institution;
Long/short term insurance policy documents, from the
Financial Service Provider;
Attorney/Accountant/Auditor letter on
Attorney/Accountant/Auditor letterhead confirming the
address of the client;
Motor Vehicle registration/licence documents;
Physical site visit conducted for verification purposes;
The Income Tax registration number An official SARS document
Signature of IO…………………………… Date:…………………………..
Signature of RM……………………………. Date:…………………………….
Business Background:
Name of shareholder %age Shareholding Gender BEE Status
Include the following information:
Who owns the company (what is the percentage held by BEE)?
How old is the company?
What does the company do, or what are they intending to do?
Which sector are they operating in?
Who are the strategic partners?
Comment on profitability of the business (i.e. high level on turnover & profits achieved)
Strategic fit to mandate of sefa
Does the business qualify in terms of the sefa’s product and funding criteria:
What product are they applying for (i.e. is it a startup, expansion, etc.)
Do they meet the product financing criteria?
Funding Requirements:
Include the following information
What is the total funding requirement (total value of the project)?
How much is required from sefa? (if less that project value, who are the co-funders)
What is the purpose of the funding?
Proposed transaction structure?
Name of Investment Analyst:
Date: Click here to enter a date. Enquiry Number:
Name of Business:
(as it appears in company registration documents)
Name of Applicant:
Amount:
Product Type: Province: Choose an item.
How much is the applicant putting as contribution?
Source and Application of Funds
Source of Fund Amount Application of Fund
Commercial Viability
Include the following information:
What is the required period of funding?
Can the business repay the loan within at most 5 years (look at projected revenues and
compare to annual required repayment)?
If it’s an acquisition of equity, what is the P/E multiple that the business is being sold/bought
at (is the price negotiable?)
Consideration of competitive position of the project/company
Information on the target market, major competitors and the general norms of the industry
Has the applicant secured supply of key raw materials?
If it is a startup, has the applicant secured a market (i.e. off-take agreements, letters of
intent, etc.)?
If it is a contract, what is the duration of the contract?
Interpretation of the key ratios as per sefa FinModel (Excel) spreadsheet.
Proposed Security
Security type Value Lien
1.
2.
3.
4.
5.
6.
Developmental Impact:
Include the following information:
Number of new jobs that will be created?
Participation by black designated groups (i.e. youth, rural women & people with
disabilities)
Management Experience:
Name Responsibility/Position Qualifications Experience
Include the following information:
Brief biography of the proposed management team.
Will the applicants be operationally involved in the business?
Does management have relevant experience for the chosen business?
Recommendation
Make a recommendation based on the summary of the key points from the discussions above.
DUE DILIGENCE: PEER REVIEW GUIDELINES
PEER REVIEW GUIDELINES
The condensed credit report submitted to sefa management places great responsibility on IO, RM and
HoR to ensure that the due diligence is thoroughly done, peer reviews are completed and that all
relevant key issues are communicated to the Credit Committees and the Board.
We all make mistakes. Any person no matter how experienced can make an error. In addition to this
there are a number of assumptions made in due diligence. It is therefore of paramount importance
to have somebody who had not been involved in the due diligence processes questioning the
assumptions and approaches.
A peer review offers opportunities for training and skills transfer. It also allows the team member(s)
the opportunity to get comfort on his/her work. It constitutes a form of self-regulation by these
members within the relevant field. It ensures that quality is improved and maintained. It improves
performance, and provide credibility.
It is essential to have a formal process in place for peer review to ensure consistency across all regions.
The RM could either nominate reviewers in the region or he/she will do the reviewing of the due
diligence him/herself. Peer review comments should be indicated in writing on the document being
reviewed. These comments must be placed on sefaLAS under documents and clearly marked due
diligence peer review for future reference.
Guidelines on Technical, Marketing and Financial review have been prepared to assist reviewers with
the process and are contained in the attached annexures.
Annexure A1 – Marketing Peer Review
Annexure A2 – Technical Peer Review
Annexure A3 – Financial Peer Review
Annexure A1
MARKETING PEER REVIEW
The important aspects to a marketing peer review is to ensure that the marketing submission has
logical consistency, makes overall sense, that key issues have been addressed, that the paragraph has
been well written and clearly spells out the issues.
The reviewer should focus on the following:
AREAS OF ASSESSMENT Y/N
1. Does the report seek to illustrate and demonstrate the marketing and sales strategies of the business, customer analysis, competitive analysis and the industry analysis?
2. Reasonability of sales volumes and prices.
3. Projections are well motivated.
4. The logic of the approach to the projections.
5. Marketing of the client has been thought through and is constituent with the projections.
6. Appropriateness of the product mix.
7. Historical sales have no unexplained/unreasonable fluctuations.
8. Appropriateness and adequacy of the marketing costs.
9. Positioning of the product is clear and the product use is understood.
10. Understanding of the product demand, niche, alternative products.
11. Assessment of management’s ability to adhere to projections.
12. Have there been sufficient research done and is the projections and the projections discussions consistent with the research.
13. Were the projections done independently taking into consideration all the available information?
14. Is an understanding of the market displayed?
15. Is analysis of historical sales consistent with projections?
16. Were negative/positive items independently confirmed and are they reflected in the projections and the report?
17. Are negative/positive marketing issues highlighted in the body of the report?
18. Does marketing annexures capture the relevant information?
19. Has support documentation been obtained and stored.
Investment Officer Regional Manager
……………………………….. ………………………………..
Annexure A2
TECHNICAL PEER REVIEW
The review process entails ensuring that the technical submission has logical consistency, makes
overall sense, that the key issues have been addressed and that the correct process of assessment has
been followed.
In this section the reviewer should ensure the manufacturing and production processes, the energy
requirements, quality control and supplier analysis are adequately addressed in the report.
The reviewer should consider that the following key points are adequately addressed:
AREAS OF ASSESSMENT Y/N
1. SITE AND BUILDING
Hire and ownership considerations.
Conflict of interest issues (shareholders are site owners).
Reasonability of sited related costs.
Physical location/
Site relevance to the project or expansion.
Availability of support services.
Environmental issues.
Should a new site and/or building be required, ensure the following issues have also been addressed:
Legalities around land ownership (land claims) and transfer of ownership.
Reasonability of cost estimates (building, site and services).
Have expert services been used for cost estimates where necessary.
2. PROCESS (MANUFACTURING/SERVICE)
The process description contains a logical and consistent description of the conversion of raw materials into products. Key conversion points and parameters such as flow rates, temperatures and pressures should be highlighted.
Applicability of the proposed technology.
Process ownership (Intellectual Property) issues and associated costs (royalties) are addressed.
The value service value chain captures the life cycle wide considerations from sourcing through to customer use, after sales support and on to end life cycle disposition.
Environmental, health and safety are addressed and key issues highlighted (including legal and legislative issues).
3. PROCESS EQUIPMENT
Local/import supply and key forex issues.
Reputable suppliers.
Equipment capacity match with projected requirements.
Reasonability and comprehensiveness of CAPEX cost estimates.
4. CAPACITY AND CAPACITY UTILISATION
Projected sales match with installed achievable capacity.
Adequate attention should have been given to the state of the equipment.
Potential bottlenecks.
5. RAW MATERIALS
Supply of and availability of key raw materials.
Key factors affecting supply and availability
Contribution has been calculated from the first principles and is in line with historical and/or key deviations are adequately addressed.
6. LABOUR
Key labour items that should be considered:
Availability and competency levels of the required labour.
Legislative issues.
Labour cost issues
7. KEY PARTNERSHIPS
Suppliers
Do sub-contractors feed into the technical/costing budget?
Investment Officer Regional Manager
……………………………….. ………………………………..
Annexure A3
FINANCIAL PEER REVIEW
The review process entails checking all financial budget annexures including balance sheet, income
statement, and cash flow projections for both technical correctness and logistical and reasonability of
assumptions. It requires checking of the financial considerations for completeness and correctness.
Technical Correctness:
The reviewer seeks to evaluate if the report demonstrate the financial management, controls and the
analysis of the financial statements and projected financial information is a true reflection of the
information provided by the applicant. The following should be checked:
AREAS OF ASSESSMENT Y/N
Balance Sheet
1. Increases in fixed assets reflect correctly.
2. Accumulated depreciation adds correctly and re-investment correctly applied.
3. Treatment of investment and other long-term assets such as patents and/or, trademarks are treated correctly.
4. Working capital levels compute correctly.
5. Treatment of factored debtors correct.
6. Treatment of other short-term assets – e.g. VAT receivable.
7. Treatment of other short-term liabilities – e.g. VAT payable.
8. Calculation of long-term liabilities.
9. Calculation of short-term portion of long-term liabilities.
10. Treatment of shareholders’ loans and other quasi equity.
11. Treatment of deferred tax.
12. Equity and changes in equity.
13. Peak calculation.
14. Ratio calculations.
Income Statement
1. All line items to be checked for mathematical correctness.
2. Ratio calculations.
3. Treatment of extra-ordinary items
4. Correct application of seasonality.
Cash Flow Statement/Projections
1. Are the assumptions realistic?
2. Accuracy of forecasts against actual for the past 2 years.
3. Treatment of the funds inflow/outflow.
4. All lines should be checked to ensure that assumptions are correctly applied.
Investment Officer Regional Manager
……………………………….. ………………………………..
DUE DILIGENCE CHECKLIST – CONTRACT BASED FINANCE
Note: The individual items are either marked C (‘compulsory’) or D (‘discretionary’). The compulsory items have to be completed for all contract
finance transactions whereas the discretionary items need to be noted and completed if of key importance to the due diligence. The RM must decide
when the discretionary items need to be addressed.
CONTRACT BASED FINANCE TRANSACTIONS
Name of Company: Application Number:
Investment Officer:
Amount applied for: Date of Due Diligence completed: Click here to enter a date.
Product: Choose an item. Reviewed by: Choose an item.
Sector: Choose an item.
AREA OF ASSESSMENT (C/D) Y/N Comment
1. INSTITUTIONAL & GOVERNANCE DISCIPLINE
Review signed audited Annual Financial Statements for the past two years.
C
Review the auditor’s report for the past 2 years and identify any issues giving rise to concern or qualification.
C
Assess reliability of management accounts and determine
if they are prepared on a consistent basis with that of the Annual Financial Statements.
C
Determine that compliance with internal control with policies and procedures are enforced.
C
Discuss the list/structure of subsidiaries, associated companies and other interests held by the company, target company or any of its directors in other companies or businesses (including JV’s, partnerships, consortiums, or other profit sharing arrangements).
C
Review the following information: - Certified ID copies of all relevant parties in the
transaction - Income Tax & VAT Registration - UIF registration - PAYE, SDL registration - Proof of residence of all relevant parties in the
transaction.
C
2. LEGAL & REGULATORY DISCIPLINE
Peruse contract for all authorising signatures. Check all pages are initialled.
C
Obtain letter of appointment with matching signatures. C
What is the commencement date of the contract? C
What is the completion date of the contract? C
AREA OF ASSESSMENT (C/D) Y/N Comment
Is the applicant the main contractor or a sub-contractor? C
Does the contract allow the main contractor to sub-contract work?
C
What is the percentage of work that is being sub-
contracted? C
Conduct internet search, where the tender was a public tender and published in the newspaper.
C
Conduct background check on National Treasury to verify that the contractor and/or sub-contractor is not blacklisted.
C
Check whether the appeal period has lapsed and whether
there are contractors contesting the award. C
Give background to the awarding of the contract. Unpack purpose for the award e.g. the contract is awarded as part of the government’s poverty alleviation initiatives which includes providing nutrition to schools in rural areas.
C
Detail process followed in awarding the contract. C
Basis of revenue – Based on completion of set milestones per the bill of
quantities. Revenue will be earned on completion of the project. On a monthly basis based on site progress.
C
Does the contract make provision for variations in the value?
C
Is the value fixed for the duration of the contract? C
Highlight penalties applicable under the contract C
Submit detailed project plan with payment terms from the debtors.
C
AREA OF ASSESSMENT (C/D) Y/N Comment
Value of the contract must be matched to the projections. C
Payment terms must match projected cash flow statement. C
Discuss possibility of extending the contract. C
3. TECHNICAL DISCIPLINE
Does the company comply with regulatory standards within the industry they operate in? C
What accreditation is required under the contract e.g. CIDB grading, ISO standards, SABS approval where applicable. C
Obtain list and value of projects previously completed by the company. C
Obtain certificates of completion for previous work done by the company C
Give description of assets required under the contract?
Give description on condition of existing assets that will be used in the execution of the contract.
C
Give profile of key suppliers, their terms and provide a supplier agreement where applicable.
C
List and profile key staff involved in the project. Provide
details on their qualifications, experience and time at the business.
C
Test capacity of the business if the business is currently executing multiple contracts.
C
Are there other contracts underway? C
How have the other contracts been financed? C
AREA OF ASSESSMENT (C/D) Y/N Comment
4. FINANCIAL DISCIPLINE
Obtain detailed project plan and financial projections C
Assess GP margins and compare to industry norm and previous GPs achieved by the business on similar projects.
C
What methods were used to construct the BOQ and project
plan? Test the methods used to determine costing of the project and where possible compare with similar deals.
C
Check the profitability of the entity and whether gross profit is adequate to cover overheads.
C
Check that the assumptions on the following overheads are realistic
- Rent for premises C
- Admin salaries which must be linked to the organizational
structure C
- Directors or members’ salaries C
- Electricity & water C
- Other admin expenses C
Assess the impact of penalties on the profitability of the project. C
AREA OF ASSESSMENT (C/D) Y/N Comment
Give an overall brief on the financial position of the company covering the following;
Liabilities;
Are there pending claims against the project/company? What are the funds borrowed to start the project Has the company ceded part of the proceeds of the project
to a project? Are there outstanding VAT or tax issues. How is the project currently funded (if already underway)? If funded through debt, what are the conditions of the loan?
C
Turnover
Match historical turnovers to projects previously completed Obtain progress reports if the project is already under way. Match payment terns to the cash flow projections of the
project.
C
Assets; Give description of assets required under the contract? Give description on condition of existing assets that will be used in the execution of the contract.
C
AREA OF ASSESSMENT (C/D) Y/N Comment
5. PAYMENT/SETTLEMENT OF LOAN
Review the planned method of repayment and assess its suitability.
- Direct cession C
- Joint bank account D
- Project Account D
- Debit order C
- Stop order C
RELATED EXPOSURE
Obtain the group structure and details of all related parties from the client and enquire whether any related parties have current sefa exposure. C
DEVELOPMENTAL IMPACT
Obtain and review the jobs created in terms of the following:
- Number of jobs created; - Permanent or Temporary; - Female or Male
C
AREA OF ASSESSMENT (C/D) Y/N Comment
On labour provide the following; No of labour employed; How is the labour sourced; Is there special skills required; Labour rates;
C
DUE DILIGENCE CHECKLIST – TERM FUNDING
Note: The individual items are either marked C (‘compulsory’) or D (‘discretionary’). The compulsory items have to be completed for all term funding transactions whereas the discretionary items need to be noted and completed if of key importance to the due diligence. The RM must decide when the discretionary items need to be addressed.
TERM FUNDING TRANSACTIONS
Name of Company: Application Number:
Investment Officer:
Amount applied for: Date of Due Diligence Completed: Click here to enter a date.
Product: Choose an item. Reviewed by: Choose an item.
Sector: Choose an item.
DUE DILIGENCE CHECKLIST – TERM FUNDING
CONTENTS:
INSTITUTIONAL & GOVERNANCE DISCLIPLINE
MANAGEMENT & SHAREHOLDER DISCIPLINE
MARKETING DISCIPLINE
TECHNICAL DISCIPLINE
FINANCIAL DISCIPLINE
LEGAL & REGULATORY DISCIPLINE ENVIRONMENTAL, HEALTH & SAFETY, BUSINESS INTEGRITY DISCIPLINE INFORMATION TECHNOLOGY DISCIPLINE
RELATED PARTY EXPOSURE DEVELOPMENTAL IMPACT
Section C/D Y N N/A Comments
INSTITUTIONAL & GOVERNANCE DISCIPLINE Review the strategic plan of the business
including an overview of the business and the industry in which it operates.
C
Review signed audited Annual Financial Statements for the past two years. C
Review the auditor’s report for the past 2 years and identify any issues giving rise to concern or qualification.
C
Assess reliability of management accounts and determine if they are prepared on a consistent basis with that of the Annual Financial Statements.
C
Determine that compliance with internal control with policies and procedures are enforced.
D
Discuss the list/structure of subsidiaries, associated companies and other interests held by the company, target company or any of its directors in other companies or businesses (including JV’s, partnerships, consortiums, or other profit sharing arrangements)
C
Review the following information: - Memorandum of Association or
Certificates of Incorporation - Certified ID copies of all relevant parties
in the transaction - Income Tax & VAT Registration - UIF registration - PAYE, SDL registration - Proof of residence of all relevant parties
in the transaction.
C
Engage with professional and advisory service providers of the company or target: attorneys, accountants, auditors, advertising, merchant bankers, other; obtain terms of engagement.
D
Understand the frequency of meetings of the various structures.
D
MANAGEMENT & SHAREHOLDER DISCIPLINE Review CV’s of current and future members of
management including the latest organization chart.
C
Review the details of shareholders and directors obtained? C
Section C/D Y N N/A Comments
Review the percentage ownership or potential ownership each member of the management team have?
C
Are there any loans to and from management or key shareholders? C
During interaction with management and from information supplied was it possible to form an opinion on the capability of management with regards to general administrative abilities, technical know-how, financial know how, marketing knowledge and human resource management?
C
What changes have there been in the management group in the last three years? C
Have any managerial shortfalls been identified and have these been addressed? C
• Is a succession plan in place? D
Are key man policies required and in place? C
Obtain sworn personal balance sheets of shareholders. C
Review the present salary level of management, any kind of incentive compensation, any employment contracts in place?
C
MARKETING DISCIPLINE
Review industry information to assess the current and potential growth prospects of the market in which the client operates.
C
What does the product do for its users? How does it work? What need does the product fill for its user? Is the need real, created, or imagined?
C
Review the monthly historical sales of existing products (Rand & Volumes) per major product category.
C
Review list of major customers and contact details. C
Status report of potential customers under negotiations and details of key contacts. C
Review monthly budgeted sales (Rand and Volumes) per major product category for the present financial year, including latest management account figures.
C
Review list of outstanding orders on hand. C
Section C/D Y N N/A Comments
Review details of price determination and historical price increases. C
Evaluate the reasonableness of the motivations and assumptions for the revenue forecasts taking into account the following:
.i Split of local and export sales. C
.ii Envisaged marketing strategy. C
Evaluate the quality of the sales and distribution channels. C
Check percentage of sales to each customer (to determine the main customers). C
CONDUCT AN INDUSTRY ANALYSIS FOCUSING ON:
Industry Structure
Analyze the number of companies by size, category and market segment. D
Review recent acquisition trends. D
Document recent failures and successes. D
Describe the industry in terms of the following: - geographic location, - product lines, - channels of distribution, - pricing policies, - degree of integration; and - Type of customers.
D
Note any significant barriers to entry in the industry. C
Determine the estimated growth rates of sales and profits over recent years and in the foreseeable future.
C
Determine the principal factors affecting future growth, considering the following possibilities: Demographics, Economic trends, Income trends, Sensitivities to interest rates, Market size, Technological innovations, Design of product, Pricing, Economies of scale, Advertising and marketing developments, Imports and exports, Regulations, and Environmental issues.
C
Section C/D Y N N/A Comments
Competition
Determine the major competitors of the client and evaluate its ability to sustain its competitiveness against them.
C
Note the nature of any competition from other industries in the form of substitute products. C
Obtain and review the nature and extent of trade practices and cooperation. D
In the current competitive environment, identify the key factors for success and the major threat of failure.
C
Customers and Supplies
Determine the major industries to and from which products are bought and sold, and what are their trends in terms of growth and profitability?
C
Has there been a trend towards integration of suppliers and customers? C
Is there a dependence of a few customers and suppliers and how does this compare with competitors?
C
Sales and Marketing Approach
Determine how are strategies formulated and modified? D
Sales and Marketing Personnel
Relate the company’s sales and marketing strategies to the organization structure. D
Representatives and Distributors
Identify all representatives and distributors which transact more than 10% of the turnover of the target company. Ascertain the key terms of the relevant representative and distributor agreement.
C
Identify the basis on which representatives and distributors make sales (including pricing) to third parties.
C
Section C/D Y N N/A Comments
Confirm that arrangements with key representatives and distributors will be unaffected by change of control of the target company.
D
TECHNICAL DISCIPLINE Process
Is technology fully developed/proven? C
Is technology supplied by reputable concern and are there any royalties payable? C
Are process/performance guarantees provided? C
Are technology fees reasonable and substantiated? C
Is the technology exclusive to the client? C
Is capacity in line with sales? C
Capital Purchases
Were the effects of foreign exchange considered? C
Is the foreign exchange risk mitigated e.g. Foreign exchange cover? C
•Are performance guarantees provided? - Corporate guarantee? - Bank Guarantee?
C
Does cost include delivery & installation? - Terms of delivery - Letters of Credit/insurance policy?
C
Were the effects of delivery timing and payment terms considered? C
Raw materials
Are raw materials freely available? C
What percentage of raw materials is imported? C
Are raw material suppliers reputable and if from a related party review reasonability of prices and contracts? Obtain and review long term supply contracts.
C
Are there sufficient alternative raw material and consumable suppliers? C
Section C/D Y N N/A Comments
Were the effects of foreign exchange considered? C
Did first principle cost calculations correspond to historical costs? C
Were wastage, packaging and transport taken into account? C
Manpower
Do numbers of staff tie up with process and/or expansion requirements and shifts worked? C
Is labour freely available? C
Is training provided? C
Is the staff unionized and were details of unions obtained? C
Is remuneration on all levels in line with industry and are benefits/bonuses provided? C
Does the company recognize any trade unions, work councils, staff associations or other bodies representing employees?
C
Obtain details of any or potential labour, trade union, remuneration etc. disputes C
Obtain details of any insurance scheme relating to the employees – key man, life, medical, travel, sick pay, permanent disability etc.
C
On labour provide the following; No of labour employed; How is the labour sourced; Is there special skills required; Labour rates;
C
Factory/Production Costs
Review the reasonability of each of the factory costs in detail as well as projected factory costs for utilities, rent consumables, vehicles, security, maintenance, insurance etc… insurance
C
FINANCIAL DISCIPLINE
Balance Sheet
Review the audited and budgeted balance sheets, and seek explanations for trends including ratio analysis.
C
Section C/D Y N N/A Comments
Ensure a fixed asset register is properly maintained and distinguished between capitalized, leased and owned and assets. Physically verify material assets and evaluate the need for further provision or impairment.
D
Review fixed and operating assets for useful life and operating capability. Does the company need to undertake major capital investment in the next few years to update its equipment?
C
Obtain and review a list of all intangibles assets and where applicable obtain registration documents (Patents, copyrights, trademarks , etc)
D
Are key assets adequately covered by insurance? C
Review and analyse the age analysis with regard to terms, aging, accounting policies and further determine if budgeted working capital requirements are adequate.
C
Review an analysis of provisions and reserves. C
Obtain a list of all banks with whom the company maintains a borrowing relationship, and enquire from the banks the facilities available to the company and securities held by the bank.
C
Obtain information relating to long term contracts which could give rise to liabilities. Confirm with management and auditors that all known and contingent liabilities have been provided for?
C
Enquire from management and auditors if off balance sheet funding used? If so, obtain and scrutinize copies of documentation and make extracts.
C
Review material contracts outstanding and capital expenditure commitments. C
Confirm if any permissions are required from the company’s banks prior to raising additional finance and registration/ taking security
C
Obtain copies of any guarantees, sureties, indemnities, letters of comfort provided to third parties
C
Income Statement
Tabulate, review and seek explanations for trends including ratio analysis. C
Section C/D Y N N/A Comments
Seek explanation for material difference between actual and budgeted performance. C
Perform sensitivity analysis on all relevant indicators and economic drivers. C
Confirm that all statutory tax requirements have been complied with and review all latest tax assessments.
C
Identify any large exceptional or unusual expenditure and revenue included in the accounts for the past two years.
C
Basic Assumptions How are the projections and the
assumptions put together? Are they realistic? Assumptions on which they are based and details of any inconsistencies in these assumptions
C
Review of the accuracy of forecast: budgets vs. actual for past 3 years. C
Securities and Valuation
Discuss the valuation of the company done at BA stage with client (Only for acquisitions and equity transactions).
C
Compare the sefa valuation against an independent valuation if available. C
Perform a security calculation to determine the adequacy of the security cover. C
Identify the key economic drivers in the company and how risks associated with them are mitigated.
C
LEGAL & REGULATORY DISCIPLINE
Corporate Records
Obtain and review the following original company documents: • Notice of incorporation; • Registration Certificate • Memorandum of Incorporation,
Founding Statement, Amended Founding Statement, and Shareholders Agreements.
C
Directors and Shareholder Register (not applicable to listed company) C
Section C/D Y N N/A Comments
Confirm that all statutory requirements governing the conduct of the business and company are up to date and have been complied with.
C
Enquire into any significant litigation, arbitration proceedings and administrative proceedings of government investigations, pending or threatened, affecting the company.
C
Is the transaction envisaged provided for in the Memorandum of Incorporation of the company?
C
Particulars of share capital, showing authorised and issued capital and classes of shares, copies of any agreement or commitment to create, issue or transfer shares (including loans and share options)
C
Compliance
Obtain details of any compliance programmes of the company including: product liability and competition law
D
copies of all compliance notices issued to the company C
Government Regulations and Filing
Is there material compliance with any national, regional, provincial, local requirements; C
Are all material governmental or regulatory licenses, permits, consents and r approvals of the company in force?
C
Obtain copies of all licences, consents, permits, authorisations required to carry on the business of the company or target
C
Agreements
Review materials contracts including supply agreements, guarantees, indemnities, letters of intent, letters of comfort provided by and to third parties.
C
Real Property (Land and Buildings)
Obtain and review documents relating to property owned, leased by the company; C
Are there any material liens, restrictions, violations, covenants, servitudes and agreements of any significance affecting any property owned or leased by the company?
C
Copies of all mortgages over the properties. C
Establish duration of lease and any possible causes for termination C
Determine if there are any disputes in relation to the property or leases C
Section C/D Y N N/A Comments
ENVIRONMENTAL, HEALTH & SAFETY, BUSINESS INTEGRITY DISCIPLINE
Environment
Evaluate the environmental, health and safety controls of the business and to understand the key risk areas in this regard. The following are key issues to be covered as part of the EHS assessment:
Details of environmental policy Waste management procedures Social issues Air quality management Land quality management Water management Energy conservation Biodiversity Chemical Management Zoning
C
Business Integrity
During interaction with management and from information supplied was it possible to form an opinion on the business integrity (i.e. the quality of being honest and having strong moral principles; moral uprightness), ethical issues, corporate governance, corruption and crime.
C
INFORMATION TECHNOLOGY DISCIPLINE
Evaluate both the existing IT infrastructure as well as the IT requirements of the business. C
Review the business reliance on computer technology and business continuity planning undertaken.
C
RELATED EXPOSURE
Obtain the group structure and details of all related parties from the client C
Enquire about particulars of any other businesses in which shareholders or management are interested in any significant transactions with related businesses.
Enquire whether any related parties have current sefa exposure.
C
Section C/D Y N N/A Comments
DEVELOPMENTAL IMPACT
Obtain and review the jobs created in terms of the following: - Number of jobs created; - Permanent or Temporary; - Female or Male
C
Client Number: APP0000
1. DEAL DETAILS
Applicant [include the name of the applicant as it appears in the registration documents] [please include …(Pty) Ltd or Ltd or cc (where necessary)]
Trading Name [include trading name (if applicable] [this name will not be used in the legal documents]
Financing Product Financing Product (s) is/are currently as follows: [please choose the correct financing instrument] Bridging Finance Term Loan Revolving Credit Instalment Sale Agreement
Loan Structure Rand value Rxxxx
Term [period of funding]
Grace Period X period months
Grace Type [Capital and Interest or Capital Only]
Interest rate [Interest rate to be charged on this investment]
Initiation Fee [Fee to be charged on this transaction]
Description of Business Describe the nature of business activity.
SIC Code Choose an item.
Own Contribution [the amount of money to be contributed/invested by the owners of the business].
Location State the location of the business in terms of Provinces. [Rural or Urban]
NCA Applicable State NCA Y/N
Application of Funds [reflect the total amount to be invested by sefa]
Turnover Rxxx [as per last AFS]
Assets Rxxxx [as per last AFS]
Deal Source Details Touch point [Website, Walk-in, Own-source, etc.]
Capture Date [date when the application was captured]
2. OWNERSHIP STRUCTURE
[include the shareholding structure] [draw a diagram to illustrate complex shareholding structures]
3. DEVELOPMENTAL IMPACT Gender [Male/Female] Marital Status [Single, Married,
Unmarried] Ethnic Group [Black, White, etc.] Age Group Youth/Non-Youth Total Jobs Jobs Maintained xxx Permanent Jobs Xxx New Jobs Created xxx
Temporary Jobs Xxx
Client Number: APP0000
4. DEAL SUMMARY Introduction and Project Background Brief background on the origin of the project, indicating the parties involved and specifics of the project [Not more than 5 pages]
Describe the background to the transaction, briefly explaining the need for the application/project. Give a description of the project/expansion/deal and how sefa funds will be utilised. Include any other aspects regarding the application that requires explanation. Give a description of the transaction flow or steps to be followed. Add a diagrammatic presentation of the transaction for a complex transaction in an Annexure (where
possible). Motivate the appropriateness of the structure (where applicable). Provide brief company background and mention when the company was registered. Sector or description of business in which the applicant is conducting [e.g., The applicant, Miss X is raising
capital from sefa in order to purchase xxxxxxxxxxx to operate a flame grilled chicken ABC franchise concept]
Provide brief background of individuals involved (e.g., work experience, educational background]. Brief description of the business concept. Mention the number of years the business has been in
operation. Indicate where the business will be located and briefly list reasons (as per the feasibility study) why the
location is appropriate (citing demographic factors, such as the population size, target market, e.g., low- vs. high income factors and other relevant demographic factors).
Briefly indicate how the application complies with sefa eligibility and commercial criteria/mandate. Mention the total size of the transaction and briefly mention how much the applicant(s) are requesting
from sefa and indicate how much they are contributing as own capital. Briefly mention what instruments will be used in financing the transaction. Clarify what is required from Committee.
Project objective and description; Output/results to be achieved as agreed with the Borrower
Background to and rationale.
Overview of the business concept. Indicate how many employment opportunities will be created through sefa investment. Background on individuals involved mentioning the value they are bringing (do they have the skills or do
they rely on training and support they will be receiving from other parties). sefa proposed investment structure (mention it briefly). List reasons (both commercial and mandate-related) and rationale for supporting the transaction. Describe how the operations are conducted (and where applicable, provide the diagrammatic
presentation of the work flow process describing how the business is carried out on a day-to-day basis – more like a production process).
What are the capex requirements to set up these operations? Give the features/specs of the IT system being used to record transactions and indicate whether it is
supplied by the franchisor or the franchisee who has sourced the system on his/her own. Provide analysis of operational costs listing the major costs to be incurred by the business. Provide the operational organizational structure showing each and every position/function of the business
and indicate head count for each block. Note: the organizational structure should tie up with the assumptions on salaries. Also indicate the total number of people required to run the business smoothly and the total salary bill thereof, including management salaries.
Indicate what sorts of inputs are required for products/services being offered by the business. Comment on the availability of these inputs from suppliers and indicate whether they are all sourced from
suppliers identified by the applicant. Also comment on the credit terms with the suppliers or the business (if inputs are sourced through other parties).
Client Number: APP0000
Facility Breakdown/loan amount Summary of Terms and Conditions of sefa Instruments Loan A Instrument : [e.g., Revolving Loan] Amount : RXXX Interest rate : [e.g., prime less 1% (or 12% at current rates] Security : [e.g., cession of bank accounts; cession of inventory; cession of
members’/shareholders’ accounts; unlimited/limited suretyship to the value of RXXX in favour of sefa; cession of life cover to the value of RXXX; General Notarial Bond on moveable assets.
Duration : [e.g., 60 months/5 years]. Grace period : x months on both interest and capital with interest accrued
during this period. Repayment period : [ e.g., 60 minus x] Loan B
Instrument : Tem Loan (Interest bearing loan with payments subject to the availability
of cash flows) Amount : RXXX Interest rate : it is the rate that would earn sefa a compound rate of x% [e.g.,
15%] over the duration of the loan. Security : as per Loan A. Duration : 5 years. Grace period : [e.g., 6 months] the loan shall be repayable from month [e.g., 4]
monthly in arrears. Repayment period : [e.g., 4 ½ years based on the assumption on grace period
above]. Project Cost and Proposed Funding Structure Indicate total project cost and sources of funding Indicate what the funds are being used for. Example: Proceeds from sefa’s investment will be used to fund the acquisition of XXX for (RXXX), set up costs (RXXX), and working capital (RXXX). We have further provided for the fees for registering the GNB which will be capitalized as the loan. Include a source and application of funds statement (for example):
INVESTMENT COST AND MEANS OF FUNDING
FUNDING REQUIRED FOR: R ALLOCATION OF FUNDS R
Start –up costs * xxxx sefa debt xxxx
Working capital** xxxxx Own contribution xxxxx
Initiation fee xxx Own contribution xxx
Total xxx Total xxx
We have further provided for the fees for registering the GNB which will be capitalized as the loan.
Client Number: APP0000
Sponsor’s initial commitments; Owner contribution
briefly mention how much the applicant(s) are requesting from sefa and indicate how much they are contributing as own capital.
Structure of the deal
Comment on the preferred funding model by the business and how sefa’s investment structure will meet the funding requirements of the business.
Project Company and Sponsors
Company/Borrower Profile, History, Mandate and Core Operations
Provide brief company background and mention when the company was registered.
Key Members/Shareholders profile and expertise/Net Asset Value
Provide brief background of individuals involved [e.g., work experience, educational background]. [Indicate the individual member’s Net Asset Value].
Number of years in business
Mention the number of years the business has been in operation.
Rationale for company involvement in this transaction
Briefly indicate the rationale for the company to be involved in this transaction.
Key investments to date and performance
Briefly mention the key investments made by the shareholders to date and the performance highlights of the business thus far.
Total facilities with other financial institutions
Indicate funding from other institutions (including interest rate, terms and conditions).
Credit history and record
Briefly indicate the credit history, judgement, notices, handed over etc..
Rationale for sefa involvement
Rationale for sefa involvement in the proposed transaction
Briefly indicate the rational for sefa’s involvement in the proposed transaction
Development impact
Indicate the developmental impact
i. Employment creation (number of new jobs created);
ii. Skills development;
iii. Employment equity;
iv. Preferential procurement (where applicable);
v. Geographic location;
vi. sefa’s facilitation of access to finance.
Client Number: APP0000
Value to be added by entrepreneurs and citing operational involvement which is in line with sefa’s criteria and mandate.
List advantages of being associated with the chosen business and the following points should be taken into consideration:
i. Success rate of the business concept and quote past failure rates.
ii. The extent of support to be received from the other parties.
iii. Other benefits such as the collective buying power of the buyers and indicate how savings resulting
from bulk buying are passed on to buyers (if any).
iv. The strength of the national brand-name recognition and the advantage associated with the brand as
opposed to starting a new business. Strategic and mandate fit
Identification of synergy benefits arising from the proposed transaction.
Project Assessment/Due Diligence
Financial and feasibility highlights, including scenarios and ratio analysis, financial analysis of company results
Carefully analyse the assumptions, where applicable, review and comment on historic trends. Engage
financial accountant/officer.
Projected Income Statement [PLEASE PRESENT THE BASE CASE]
Year Year 1 Year 2 Year 3 Year 4 Year 5
R’000
Sales X,XXX X,XXX X,XXX X,XXX X,XXX
Sales growth - X% X% X% X%
Gross profit X,XXX X,XXX X,XXX X,XXX X,XXX
Gross margin X% X% X% X% X%
Operational costs X,XXX X,XXX X,XXX X,XXX X,XXX
EBITDA X,XXX X,XXX X,XXX X,XXX X,XXX
EBITDA margin X% X% X% X% X%
EBIT X,XXX X,XXX X,XXX X,XXX X,XXX
Interest X,XXX X,XXX X,XXX X,XXX X,XXX
Debt Service Cover Ratios 1.x times 1.x times 1.x times 1.x times 1.x times
Net Profit After Tax X,XXX X,XXX X,XXX X,XXX X,XXX
Client Number: APP0000
Net margin X% X% X% X% X%
Comments: Please provide comments on all the key line items which should cover the following (please note that the list
is not exhaustive and will differ from industry to industry):
Assumptions on how sales have been generated. For example, for a fast food outlet, the assumption
will be based on the number of meals and the average price per meal. Furthermore, the volumes will
be based on the traffic volumes and benchmark the sales with the franchisor’s standards and similar
franchisees in the same category. Where applicable, the analysis of sales should show product split.
Assumptions on sales growth and how the growth rate has been arrived at. For instance, is it based
on the benchmarks provided by the franchisor or other relevant economic or demographic factors which
may be based on the feasibility study done by the franchisor (e.g., population growth or similar
demographics).
Provide assumptions on the gross profit margin and how it has been arrived at. Note: the margin should
be constant for the projected period.
Assumptions on major operational costs such as the following:
i) Salaries (providing details on salary per position and head count).
ii) The total salary bill should reconcile to the amount in the income statement (monthly and
annually).
iii) Royalty fee and other fees. Please list them and indicate whether they are as per the franchise
agreement (for instance).
iv) Rental, water and lights, rates and other charges. Provide assumptions as per the lease
agreement and other agreements that provide for these items.
v) UIF and PAYE – based on the salary bill.
vi) Interest expense.
vii) Tax rate.
viii) Depreciation rates.
ix) Other key line items.
Discuss the inflation assumptions and the basis thereof.
Comment on the results, namely, profitability, DSCR and provide additional information deemed
pertinent in the commercial analysis of the application.
Client Number: APP0000
Balance Sheet – [PLEASE PRESENT THE BASE CASE]
Year Year 1 Year 2 Year 3 Year 4 Year 5
R’000
ASSETS
Net Fixed Assets X,XXX X,XXX X,XXX X,XXX X,XXX
Intangible Assets X,XXX X,XXX X,XXX X,XXX X,XXX
Total Current Assets X,XXX X,XXX X,XXX X,XXX X,XXX
- Inventory x,xxx x,xxx x,xxx x,xxx x,xxx
- Inventory holding period
x.x days x.x days x.x days x.x days x.x days
- Debtors x,xxx x,xxx x,xxx x,xxx x,xxx
- Debtors days x.x days x.x days x.x days x.x days x.x days
- Other Current Assets x,xxx x,xxx x,xxx x,xxx x,xxx
- Cash & cash equivalents
x,xxx x,xxx x,xxx x,xxx x,xxx
TOTAL ASSETS X,XXX X,XXX X,XXX X,XXX X,XXX
EQUITY & LIABILITIES
Equity
- Shareholders funds x,xxx x,xxx x,xxx x,xxx x,xxx
Total Long-term Liabilities
X,XXX X,XXX X,XXX X,XXX X,XXX
- Shareholders loans x,xxx x,xxx x,xxx x,xxx x,xxx
- sefa Loan x,xxx x,xxx x,xxx x,xxx x,xxx
Total Current Liabilities
X,XXX X,XXX X,XXX X,XXX X,XXX
Client Number: APP0000
- Creditors x,xxx x,xxx x,xxx x,xxx x,xxx
- Creditors payment days
x.x days x.x days x.x days x.x days x.x days
- Other creditors x,xxx x,xxx x,xxx x,xxx x,xxx
- Tax payable x,xxx x,xxx x,xxx x,xxx x,xxx
- Bank OD x,xxx x,xxx x,xxx x,xxx x,xxx
TOTAL EQUITY & LIABILITIES
X,XXX X,XXX X,XXX X,XXX X,XXX
Comments: Please provide comments on all the key line items which should cover the following (please note that the list
is not exhaustive and will differ from industry to industry):
Assumptions on fixed assets and comment on the type of assets the company is acquiring.
Indicate what type of intangible assets the company has and what gave rise to the asset. Provide
complete details including calculations where applicable.
Comment on the assumptions regarding the stock holding period and indicate the basis thereof (e.g.,
is it based on the franchise benchmarks, etc.).
Comment on the assumptions regarding the debtors payment days and indicate the basis thereof (e.g.,
is it based on the franchise benchmarks, etc.).
Comment on the assumptions regarding the creditors payment days and indicate the basis thereof
(e.g., is it based on the franchise benchmarks, etc.).
Provide a summary of salient terms and conditions of the shareholders’/members’ loans.
i) indicate whether they have fixed terms of repayment;
ii) do they attract interest;
iii) will they be subordinated to sefa’s loan; and
iv) other relevant terms and conditions.
Provide a summary of salient terms and conditions of sefa’s loans.
i) interest rate;
ii) duration of the loan;
iii) grace period; and
iv) other relevant terms and conditions.
Client Number: APP0000
Comment on the following ratios: [ADD MORE RATIOS] XXXXXX
Year Year 1 Year 2 Year 3 Year 4 Year 5
Activity Ratios
- Current ratio
- Quick ratio
Finance Ratios
- D/E ratio
- Debt/Total Assets
Cash Flow Statement
Year Year 1 Year 2 Year 3 Year 4 Year 5
R’000
Net Cash Flows from Operations X,XXX X,XXX X,XXX X,XXX X,XXX
- EBIT X,XXX X,XXX X,XXX X,XXX X,XXX
- Depreciation X,XXX X,XXX X,XXX X,XXX X,XXX
- Net working capital (X,XXX) (X,XXX) (X,XXX) (X,XXX) (X,XXX)
- Inventory (x,xxx) (x,xxx) (x,xxx) (x,xxx) (x,xxx)
- Debtors (x,xxx) (x,xxx) (x,xxx) (x,xxx) (x,xxx)
- Other current assets (x,xxx) (x,xxx) (x,xxx) (x,xxx) (x,xxx)
- Creditors x,xxx x,xxx x,xxx x,xxx x,xxx
- Other creditors x,xxx x,xxx x,xxx x,xxx x,xxx
- Interest Paid (x,xxx) (x,xxx) (x,xxx) (x,xxx) (x,xxx)
- Tax paid (x,xxx) (x,xxx) (x,xxx) (x,xxx) (x,xxx)
Net CF’s from Investing Activities X,XXX X,XXX X,XXX X,XXX X,XXX
- Capex (x,xxx) - - - -
Client Number: APP0000
- Acquisition of intangible assets1 (x,xxx) - - - -
Net CF’s from Financing Activities X,XXX X,XXX X,XXX X,XXX X,XXX
- Shareholders capital x,xxx x,xxx x,xxx x,xxx x,xxx
- Shareholders loans x,xxx x,xxx x,xxx x,xxx x,xxx
- sefa’s loan raised x,xxx - - - -
- sefa’s loan repaid (x,xxx) (x,xxx) (x,xxx) (x,xxx) (x,xxx)
Net Cash Movement X,XXX X,XXX X,XXX X,XXX X,XXX
Provide brief comments of the results focusing on:
i) working capital requirements and funding thereof;
ii) ability of the business to generate sufficient cash flow from operations to fund interest payments and
capital repayments;
iii) capital expenditure and how it has been funded (either through capitalization of the business or from
operations);
Net cash movement and the need for an overdraft facility or refinancing in the event of negative cash
flows.
Sensitivity Analysis
Best Case Scenario Base Case Scenario Worst Case Scenario
Variables
- Sales assumptions (e.g., volumes, capacity, etc.)
- Sales growth
- Gross profit margin
- Inflation- sales
- expenses
- Inventory holding period
- Debtors days
- Creditors days
1 Where applicable.
Client Number: APP0000
Results
Sales (R’000)
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
EBITDA margin
Yr 1: x%
Yr2: x%
Yr3: x%
Yr4: x%
Yr5: x%
Yr 1: x%
Yr2: x%
Yr3: x%
Yr4: x%
Yr5: x%
Yr 1: x%
Yr2: x%
Yr3: x%
Yr4: x%
Yr5: x%
EBIT
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Net profit
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Cash Flow from Operations
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Net Cash Movement
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Yr 1: Rx,xxx
Yr2: Rx,xxx
Yr3: Rx,xxx
Yr4: Rx,xxx
Yr5: Rx,xxx
Client Number: APP0000
Company and Management analysis including SWOT analysis
Please provide the following details pertaining to each member of the key management. Brief overview of individuals who will be involved in the day-to-day running of the operations
commenting on their educational background, past work experience and the function and role that
he/she will be playing in the business. Also indicate whether each member of the management team
is a shareholder or member (if it is a close corporation) and show their respective
shareholding/member’s interest.
Perform a brief analysis of strengths and weaknesses of the applicants given their experience, skills
and expertise. Indicate whether they have the necessary expertise and skills to run the business and
if not how this will be addressed.
Indicate how much in total will management be paid as salaries and break down per individual (including vacant positions). Comment on whether these are in line with industry pay rates (and the comment should be based on information provided by business/applicant).
Technical/Operational highlights; Raw materials and Supplier analysis
Describe how the operations are conducted (and where applicable, provide the diagrammatic
presentation of the work flow process describing how the business is carried out on a day-to-day basis
– more like a production process).
What are the capex requirements to set up these operations?
Give the features/specs of the IT system being used to record transactions and indicate whether it is
supplied by the franchisor or the franchisee has sourced the system on his/her own.
Provide analysis of operational costs listing the major costs to be incurred by the business.
Provide the operational organizational structure showing each and every position/function of the
business and indicate head count for each block. Note: the organizational structure should tie up with
the assumptions on salaries. Also indicate the total number of people required to run the business
smoothly and the total salary bill thereof, including management salaries.
Indicate what sorts of inputs are required for products/services being offered by the business.
Comment on the availability of these inputs from suppliers and indicate whether they are all sourced
from suppliers identified by the franchisor. Also comment on the credit terms with the suppliers or the
franchisor (if inputs are sourced through other parties).
Site Visit
Site visit done by sefa official to conduct the due diligence.
Personal Bank statements
Briefly comment on the findings from the 6 months personal bank statement of the applicant(s)
Lease Agreement
The comment on the lease agreement should cover:
State the duration of the contract and indicate whether it at least matches the term of sefa’s investment
instrument. Indicate whether it is renewable and the conditions thereof.
Comment on the cancellation clause, that is, specific acts that will lead to cancellation. Also indicate
Client Number: APP0000
whether the lessee also has a right to cancel.
Sale Agreement
What are the major terms and conditions of the purchase and sale agreement (if any).
Please indicate suspensive sale conditions (if any).
Market Assessment
Size of market
Industry Overview
Provide macro view of the relevant industry in terms of total annual sales.
Provide industry historic and projected growth rates.
Provide information on the size of the target market in the area where the outlet will be located.
List factors that contribute towards demand for the product or service including the social trends, tastes
and other similar factors.
Client Number: APP0000
Competitive forces within the market and competitive advantage of the client business
Competitive Landscape
Describe the competitive landscape by indicating which franchise concepts are dominant in the
relevant industry.
Describe what makes them dominant and indicate what their respective market share is.
Indicate the current market share of the target franchise brand.
What are the strengths and weaknesses of the major competitors in relation to the target franchise
brand?
Contrast the key product features of the target franchise brand with those of a close competitor. See
example below:
XYX Menu ABC Menu
a) King Steak Burger R39.00 Chicken Burger R24.95
b) 1 piece, chips and roll R 18.00 ¼ chicken and chips and roll R21.50
c) 2 pieces, chips and roll R25.00 ¼ pieces, chips and salad R26.95
d) Kids meal R24.00 Kids meal R18.95
e) 2 pieces fried chicken R17 ¼ piece fried chicken R13.95
Customer Analysis
Provide the profile of the target market in terms of demographics (e.g, income levels, sex, age,
and other relevant factors).
Indicate which target market is being targeted and describe it in terms of LSM grouping.
[product, place, promotion, price, etc. – must talk to the business marketing strategy]
Market profitability
What has the profitability of the companies in the industry been each year?
What minimum turnover levels are required to achieve profitability?
Location
What are the demographics of the area?
In which type of the site is the business situated? (mail, free standing)
How visible is the site?
What infrastructure exists? (Roads, Municipal services)?
Is sufficient and accessible (Safe) parking available?
What kind of traffic is in the area? (Foot/Vehicle traffic)?
Is the signage visible and efficient?
Client Number: APP0000
Legal Assessment
Contracts and assessment of other legal issues
License requirements and compliance.
Availability of electricity/physical infrastructure.
Health requirements as listed in the council by-laws and other relevant regulatory bodies.
Regulatory requirements in terms of disposal of waste and whether there are any special requirements.
Labour issues such as overtime payments, deduction of statutory taxes and other relevant issues
Conclusion
[Motivate why sefa should invest in this business, include issues such as:
commercial viability; experience of the entrepreneur; favourable trading conditions, etc.
5 CREDIT RECOMMENDATIONS Management and Operational Risk
Comment on management skills and expertise, in particular the risk associated with inexperienced
management in general, in relation to the sector, in relation to the technology used or to be used by the
company.
List the risk mitigating factors, e.g., mentorship, appointment of management with requisite technical
expertise, support and training from other parties.
Market Risk
Risk associated with the market factors, e.g.,
i) barriers to entry;
ii) market consolidation versus fragmentation and opportunities thereof;
iii) competition and substitute products/services;
iv) size of the market and growth rates;
v) Industry life cycle, e.g., introduction phase, growth phase, maturity phase and decline phase.
What changes are occurring in the market that will affect the way the business is conducted (at franchisor
level), and hence the profitability of the business.
Risk associated with Franchisor’s Financial Strength
Risks to be analyzed are associated with the following:
Number of years the franchisor has been in business.
Number of new outlets opened recently versus those that have closed and reasons thereof.
Financial strength and past performance of the franchisor, taking into consideration the level of gearing,
sales growth and profitability, amongst other financial factors.
The level of disclosure that the franchisor is willing to share (failure to disclose all relevant details may
Client Number: APP0000
be an indication that the franchisor is trying to hide something).
The level of support offered to franchisees, including instances where the outlet is being mismanaged
(that is, is the franchisor willing to step in).
Any claims of minimal risk and promises of unrealistic profits.
Unjustified start-up fees.
High pressure sales tactics.
Supply Risk
Risk emanating from the availability of critical raw materials and other inputs highlighting issues such as:
i) Distance from the source of supply.
ii) Support given by the franchisor.
iii) Flexibility in terms of sourcing own raw materials or inputs.
Completion Risk
Risk associated with the undercapitalization of the project which may impact on completion due to cost
overruns and delays in completion.
To take into consideration the basis of cost estimates of the project (are they based on quotes and has
adequate contingency funds been provided for reasonable cost overruns and time delays due to unforeseen
circumstances?)
Legal & Regulatory Risks
Legal issues to be considered in risk analysis are:
i) Franchise Agreement:
Territorial protection clause in the contract (e.g., does the contract protect the franchisee from other similar
franchises from the same stable from encroaching the demarcated zone/area).
ii) On the Lease Agreement:
Things to consider in analysing risks associated with the lease agreement are (among others):
The duration of the lease agreement (should at least be not less than the duration of sefa’s loan,
preferably, it should be longer)
Is it renewable at reasonable terms and conditions (preferably at the same terms and conditions as the
original one).
iii) Regulatory issues
Things to consider in analysing the risk associated with the regulatory environment would be:
License requirements and compliance.
Availability of electricity/physical infrastructure.
Health requirements as listed in the council by-laws and other relevant regulatory bodies.
Regulatory requirements in terms of disposal of waste and whether there are any special requirements.
Client Number: APP0000
Labour issues such as overtime payments, deduction of statutory taxes and other relevant issues.
Technology Risks
These are risks associated with technology used by the business. Questions to be asked when performing
risk analysis on technology (among others) would be:
i) Is the technology new and untested?
ii) Is it redundant and would need to be replaced?
iii) What are the cost implications and who will bear them.
iv) Is the technology standardized across the business network?
v) Does the franchisor provide IT support?
Financial Risks
Risk associated with the funding structure (debt versus equity) and the ability of the business to repay sefa’s
investment.
Other risks to be considered emanate from taxation, contingent liabilities, interest rates, derivative exposure,
changes in accounting policies.
Environmental Risk
Risk associated with poor environmental, health and safety practices.
Force Majeure
Impact on business as a result of acts of nature, strikes, sabotage, access roads, water, etc.
It is recommended that approval be granted based on the following conditions:
[list them and the amounts]
6 CONDITIONS PRECEDENT AND OTHER TERMS & CONDITIONS The objective is to ensure that all the conditions precedent in the term sheet are complied with. Key conditions precedent could include: Compliance with tax laws, FICA Conclusion of key agreements eg lease agreement, purchase and sale agreement, service contracts Registration of securities
Client Number: APP0000
VALUATION NOTES: (Example supporting basis of valuation) The valuation on the equipment was conducted by Mr. XXX YY, the technical director at BBC Size Air. The valuation takes into account that the GMC/Volvo Truck vacuum body has been refurbished to new specifications during January 2007. The Chassis was refurbished in January 2007 which includes Cummins/fuller/Rockwell driveline. Telephonic discussions were held with Mr. XXX YY regarding prospective users of this equipment. He confirmed that institutions such as municipalities, cement companies, mines, steel companies and the general waste companies use these machines/equipment to vacuum spillages and waste.
[REFER TO DELEGATION MATRIX FOR THE CORRECT LIST OF SIGNATORIES]
7 SECURITIES AND COLLATERAL
8 ADDITIONAL CONDITIONS SET BY COMMITTEE (additional conditions set by committee)
Name: __________________________________
Date _____________________________
Name: __________________________________
Date _____________________________
Name: __________________________________
Date: _____________________________
Name: __________________________________
Date: _____________________________
Client Number: APP0000
Name: __________________________________
Date: _____________________________
Name: __________________________________
Date: _____________________________
PRODUCT GUIDELINES
Facility Type Payment plan Moratorium Repeat disbursements
Applicable security
Bridging Loan Single balloon payment on completion.
Nil Nil Cession of payment from contract;
Joint signatory powers on the trading account, as provided to the off taker.
Revolving Credit Facility
Collections from the debtor/ s
Nil Yes, review to occur a month prior to the end of the term.
Cession of debtor/ s payments to be made directly to sefa for the term of the loan.
Term Loan Monthly/ quarterly/half-yearly
Yes Nil As listed on the decision record.
A stop order to be obtained, pending finalisation of the debit order, post disbursement in 30 days.
Instalment Sale Agreement
Monthly/ quarterly/half-yearly
Yes Nil ISA, plus additional security listed on the decision record.
A stop order to be obtained, pending finalisation of the debit order, post disbursement in 30 days.