THE UNIVERSITY OF FAISALABAD

FINAL TERM EXAM

DEPARTMENT: BBA (MANAGEMENT SCIENCES)
SEMESTER 6th

SME Final Exam

Date: 08-06-2020
Name: Muhammad Kaleem Akbar
Roll No: BBA-FA17-002
SUBJECT: Small Medium Enterprise

NAME: MUHAMMAD KALEEM AKBAR

ROLL NO: BBA-FA17-002
Question 1: Not many lenders will consider granting you, or anyone else for that matter, a
loan without security. Now assume that you are running a small business and need a loan
to meet the expenses. Discuss, what can be the typical collaterals you give to lenders by
pledging assets, which they can seize and sell off, if you do not pay back the loan. (5)

Ans: To run any kind of business, capital is being required. For this purpose, to get a liquid cash in hand,
entrepreneur go for lending the money. In this process we have to pledge some of our assets according
to the value of lend money. In my case I would be pledging a piece of land or a building to lender.

Pledging a piece of land or building to lender as a security would be the best option for me to opt. The
objectives which made me to go for this option is as following:-

 As I will lend money from a bank, my building would be pledge to bank. My building official
papers would be in the custody of bank. It would make my building/property more secure as no
one can allege on my property’s ownership or illegally proof it theirs. Legally bank would be
involved because before lending money to me bank has gone through proper audit & survey.
This is one of the biggest benefit for me to secure my land/building.

 Even though the property legal documents would be pledged to bank but still I can use that
land/building. For instance I pledged the building to bank, I can run my business in it or even can
rent it out. The rental amount can be used as a liquid cash for my business or even I can pay the
installments of the loan to bank from that amount.

 If compared with other collaterals such as gold, bonds, Raw material or Investment etc., these
will get solidify and I can’t use these collaterals.

 If we check in general, the markup/interest rate we have to pay on building/Land is

comparatively less than other collaterals. This is also beneficial for me.

After over viewing my objectives pledging the land/building will be the best option so far opted by me to
get loan from a bank and enhance my business.
Question 2: Working capital management or current asset management is one of the most
important aspects of overall financial management in an enterprise. Discuss (7)

Ans: Working capital management is known as the business procedure which is design to
assure that a firm operates effectively by observing and utilizing its current assets & liabilities
at its best. Basically a firm’s working capital is made by deducting its current liabilities from
current assets.
The objectives are as following:

 It require to monitor a firms assets and liability for maintaining plenty amount of cash
flows.
 In working capital management we have to keep tracking the three 3 ratios. Working
Capital ratio, collection ratio & inventory ratio.
 Keeping those three ratios at ideal levels guarantees effective working capital
administration or management.
The Elements of working capital management in a SME is as following:

 Budgeting the need of material

 Production shall go without any hurdles or interruption.
 Liquidity and turnover shall be fast
 Following of bills accordingly and maintaining bills records.
 Identifying the excess amount of money.
 Source of capital for working.
The aspects affecting the requirements of working capital:

 Size of a firm
 The kind of process
 Ratio of Raw materials
 Terms for buying and selling
 Turnover of Inventory
 Labor Vs. Capital Intensity
 Cash required
These all factors, elements and objectives plays a vital role such as a back bone of financial
management in a working capital, management. If above mentioned things are focused our
SME can get a steady growth and enhancement without any big hurdles.
Question 3: The WTO is a fact of life. Like any other dispensation, it causes threats of loss
and offers opportunities for gain particularly in SMEs. Therefore, there will be both loser
and achiever hence it is necessary, among other things, to develop effective mechanism to
convert the challenges into opportunities. Should Pakistan has to drop a sound and
comprehensive strategy for sustainable accelerated growth in SMEs? (7) *

Ans. WTO (World trade organization) is an international organization which deals in the rule
and regulation between the trades in between 2 or more countries. In WTO, negotiations are
been done according to the deals. Sometimes they get in favor of a country and sometimes it
becomes a challenge.
By seeing the current scenarios of an international trade, Pakistan has to take initiative in
giving comprehend and long term proposal in favor of sustainability growth of the SME in
Pakistan.
For instance bulk quantity of pulses and mazes are been imported from Canada by Pakistan
same as Pakistan is exporting bulk quantity of garments to Canada. There is less amount of
duty paid by Pakistani importers than Canadian importers , Due to this import duty issue
Canada prioritize Bangladesh for importing the garments as their duty are comparatively
less. This effects our SME because exports tend to get less as international buyers such as
Canadian market goes for other country leaving us behind.
Pakistan is working on this duty issues as we got GSP+ status in European market and we are
open to export easily there. Same as Pakistan shall be raising sound to break this trade
barriers. Our SME has to grow steadily for this exports and imports should be smooth rather
than facing trade deficits.
Many trade agreements are signed by ministry of Pakistan and also many are to be signed.
Pakistan shall focus on their trade barriers. There should be no reluctance to compete in open
market for Pakistan same as other developing countries. Pakistan Is a developing country & a
country only become developed when exchange of good are done in return of money without
in trade deficit. Our SME are the back bone of trades. They produce quality products which
are further exported in various countries for exchange of dollars. For the sake of our growth
of SME Pakistan Ministry are taking measures and further they shall make more trade
agreements.