Enterprise analysis – a cornerstone of SME credit risk management
In connection with each application for financing, Finnvera assesses the applicant’s prerequisites for profitable business. Opinions given by Finnvera’s regional cooperation partners are used as help when assessing the business of small start-up enterprises.
Enterprise analysis entails a comprehensive investigation and understanding of the enterprise’s business: confidential discussions between the entrepreneur and Finnvera on the enterprise’s plans, current status, future expectations and financing needs. This meeting, any other material available, and Finnvera’s own knowledge of financing and the sector concerned help formulate an idea of both the preconditions for granting financing and the risks involved. Whenever necessary, Finnvera negotiates with other financiers in order to find the best possible overall solution for financing. Finnvera’s representative and the entrepreneur also discuss what the increase in loan capital would mean for the entrepreneur personally.
Enterprise analysis is one of the cornerstones of Finnvera’s credit risk management. Its importance is emphasised particularly during economically challenging times.
The enterprise analysis and experience gained from numerous similar projects help in responding to difficult situations in a timely manner. The earlier an enterprise’s business challenges are identified and addressed, the better the chances are for that enterprise to enjoy a profitable business in the future.
Some of the financing granted by Finnvera requires a personal guarantee from the entrepreneur and collateral from the enterprise. However, Finnvera bases its financing decision not on the collateral available from the enterprise but rather on an assessment of the enterprise’s business potential.
Along with the revised credit and collateral policy, enterprise analysis will also be developed in 2015.
The country policy and country classification system as the basis for an overall assessment
Finnvera makes an overall assessment of the risks included in export transactions. Finnvera’s country policy and the eight country risk categories (0-7) form the basis for project assessment. For the country policy, Finnvera analyses the business environment and financing sector in the buyer’s country, the government’s solvency and the associated risks.
For each project, the following factors are analysed: the financing structure; the creditworthiness of the borrower and/or buyer; and the factors arising from the host country and the operating environment.
The level of environmental protection measures associated with the project carried out in the host country and any risks that may be involved are assessed separately on the basis of environmental studies conducted for the project. The project is benchmarked against the host country’s national environmental norms and international standards.