The Role of Due Diligence of NBFC for Sale

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NBFC or Non-Banking Financial Company is a financial entity registered under Section 45-I of Reserve Bank of India Act. It is a perfect alternate of traditional lending institution servings various businesses, like micro and small-sized industries, for deploying funds. Catering the needs of weaker sections of the economy, the NBFC License plays a significant part in restoring the financial position of India. When one considers the sale or purchase of an NBFC, it becomes utmost essential to assess its commercial potential. Due diligence of NBFC for sale is an extensive procedure. This blog will enlighten you about the entire subject of NBFC for sale.

Due Diligence of NBFC

Due Diligence of NBFC means the appraisal of the business, especially to establish its assets and liabilities and evaluate its commercial potential. Further Due Diligence can be defined as the comprehensive appraisal of a business undertaken by a prospective buyer.

Types of Due Diligence of NBFC

Any buyer who intends to purchase an NBFC shall undertake a comprehensive assessment of the same in the form of due diligence. A buyer executes four types of due diligence of NBFC, namely:

  • Legal Due Diligence: The legal due diligence refers to the scrutiny of a company on a legal basis. Further, it implies to the inspection of the NBFC transactions, including property, contracts, impending litigation, loans, and employment under the legal structure.
  • Commercial Due Diligence: Before setting up a new company or business, one needs to comprehend its market value. Therefore, while taking hold of an NBFC for sale, the buyer must carefully analyze its business market. The commercial due diligence is a broad term that covers the reviewal of strategies, competitors, business plan, expected sales, relationship with customers, business popularity, and so forth.
  • Financial Due Diligence: As the name suggests, this due diligence is all about finances. It entails an examination of the financial information of an NBFC. The financial due diligence comprises of information relates to the assets, liabilities, cash flow, debts, capital, management, etc.
  • Other Due Diligence: The other due diligence is as important as legal, financial and commercial due diligence. It encompasses a quick assessment of various parts of an NBFC such as Intellectual Property, Taxation, Organizational Structure, Information Technology System, communication channels, hierarchy system of management, etc.

Collection of Information

The most required and question matter in terms of the Due Diligence process is information, the source of information, reliability, and accuracy. Hence Information of Target Company is most to gather and acquired in a systematic way to find the required compliance to mark in order to possess informed decision regarding any substantial decision regarding any entity of which due diligence is done. More or less information regarding entity can be accessed from Business News, Market Data, and Company Financial, directors of Company as well as an employee of the company too.