deAsra Knowledge Desk
Averting Non-Performing Assets Via The Business Assessment Route

Averting Non-Performing Assets Via The Business Assessment Route

Banks, today, have to increasingly deal with non-performing assets (NPAs) and owing to the burden of these NPAs, have become wary of supporting entrepreneurs and small businesses.

This situation, however, can be avoided by banks and can turn into a favourable position for both parties, the entrepreneurs and the banks. But before getting to the solution, it is best to understand the problem in detail.

As is known, aspiring entrepreneurs have all the zeal and enthusiasm to start a business of their own, what they lack, however, most of the times, is the finances to fuel their dream project.

That is where banks come into the picture as the most credible and reliable source to provide funding in the form of loans. Banks too, on their account, are willing to support entrepreneurs fulfil their dreams by providing loans to these budding entrepreneurs. These loans are liabilities for entrepreneurs, but they are definite assets for the banks.

However, the problem arises when the business started by the fledgeling entrepreneurs hits rough waters or does not perform as expected. In turn, the business owners are unable to pay back the loan along with the interest and that is when the loan and the business of the entrepreneur becomes a non-performing asset or NPA for the bank.

For fear of bearing the burden of a rising number of NPAs, banks shy away from supporting endeavouring entrepreneurs and small businesses. But that is not an expected solution for either of the parties. Instead what is a suitable solution to the problem is getting the business plan of the striving entrepreneurs examined and assessed in order to ensure that the business idea is sound and has the potential to succeed.

Business Performance Evaluation tool and Business Planning-Idea Validation service such as those offered by deAsra Foundation are ideal ways to nip the problem in its bud. 

The Business Performance Evaluation tool from deAsra Foundation helps businesses identify areas for improvement by recognising the lacunae and working on the shortcomings in order to generate projected revenue results. The tool evaluates the performance by asking the entrepreneurs details about the business including whether the turnover is as expected, are the employees and machines occupied for the entire day, are the orders greater than the output, and several queries in order to evaluate the overall performance of the business and identify the areas which are falling short and can be improved upon. Thus when businesses approach banks for loans post evaluating their performance, they are aware of their weaknesses and have worked on it or on ways to improve the business.

Additionally, through Business Planning and Idea Validation services deAsra carries out-

  • Business Identification– in this the exact business is decided by taking into consideration the type of business activity, the business entity, the place of business, the training and experience required, the target audience, members needed to support the business and the mission statement.
  • Product And Service Definition– under this the products and services are defined in sync with the business activity and along with its packaging, pricing and description. 
  • Competition Study– this involves analyzing the competition, both current and potential along with surveying the competitors on the basis of pricing structure, marketing trends, the strengths and weaknesses of their products or services.
  • Expenditure- under this the overall expenditure estimated to set up the business as well as for day to day activities are approximated, including considering purchases made for equipment, machinery, furniture, office expenses, electricity, and other start-up costs and daily expenses.
  • Sales Estimatehere the sales for the business are estimated, taking into consideration seasonal trends, bulk orders, change in demands of products/services, festive sales, etc. all of which will help provide an approximation of the annual sales of the  business.

Once deAsra evaluates the business plan, it also estimates the viability of the plan. This assessment is quite thorough and can identify gaps if any at the start itself. 

Banks can thus use these detailed performance reports as well as assessment reports to judge whether it is worth funding the business and to make an estimation about the future outcome. 

Banks can either ask the businesses applying for a loan to submit the project reports that include an assessment of the business plan and validate the idea. Or they can employ these business plan viability and evaluation services on their own to avoid NPAs.

It is always better to be cautious and thorough rather than repent on the consequences later. Therefore business owners can always apply tools like the Performance Evaluation to identify problem areas and improve on them because then businesses and as well as banks will definitely be well equipped to avoid unfavourable outcomes in the future.

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