I have in my earlier postings covered the topic of Bank Loan Appraisal process. I have compiled here certain important financial tools being used in appraising the admissibility of loan. The tools used in the appraisal process for start-up projects, for existing organizations, for Term Loan and for Working Capital are not all the same. There are some additional tools not covered herein.
The common requirement for an entrepreneur is availing loan / financial support from Government or Banks. Mostly the government support is extended in the form of capital subsidy, interest subsidy, marketing support, technology support, skill development, credit guarantee and more as could be seen from http://www.dcmsme.gov.in/schemes/sidoscheme.htm.
However, all the financial support is routed through banks. Term loans for CAPEX are released in the name of machinery & equipment suppliers while the Working capital is made available in the form of OCC. The sanction could be through fund based or non-fund based or mixed.
Every prospective borrower of loan would get a common question as to whether bank will sanction loan for the project. Even the regulating authority of respective government schemes would not be able to confirm about the prospects of loan sanction.
I have attempted to draw important points evaluated by banks in the sanction of loan. Mind these are not exclusive. If you feel you have answers for most of the things, you will sure get loan from the Bank. After all, Banks are always keen to lend money where they find business i.e. confidence and assurance that the borrower will not default in loan repayment. Hence, it is the duty of borrower to satisfy the business requirement of banks so that he become eligible to draw deserved financial support. Once a healthy relation is formed with a banker, we can always be sure about drawing further support in the name of extended Term Loan or extended Working Capital or any other mode.
Loan sanction is a cumbersome process. Depending upon the availability and submission of various data by the borrower, it would take a minimum of 4 weeks time for a new loan application for a start-up project.
Business loans can be availed even without any collateral security under CGSME and PMEGP. I have compiled a list of loans available, eligibility to avail the loans and other important details in that regard.
(click on the image for a better view)
The following are the details of financial assistance available under PMEGP.
|Industry||Eligible loan||Promoters equity||Subsidy||Loan given by||Security|
|Manufacturing||INR 25.00 lakhs||General Category:
Special (including SC / ST /
Urban : 15%
Special (including SC / ST /
Urban : 25%
|Any Public Sector Bank or Private Scheduled Bank at their discretion based on the project viability.||Nil up to INR 5.00 lakhs
Covered under CGF above INR 5.00 lakh and up to INR 1.00 crore.
Under CGF no security required up to INR 1.00 crore.
Banks at time might demand depending upon the merits and demerits of the project.
|Service||INR 10.00 lakhs|
Required enclosures along with application:
- Project report of the activity
- Attested copy of OBC / ST / Minority / PHC / Ex-servicemen certificate.
- Attested copy of the educational qualification, experience, training certificate if any.
- Attested copy of EDP training [for a minimum period of 2 weeks] certificate, if any.
- Affidavit in bond paper costing Rs. 15/-
- Consent letter from Bank, if available.
- No objection from Gram Panchayat, if applicable
- All the loan applications received under PMEGP scheme will be placed before the District Level Task Force Committee [DTFC] under the Chairmanship of the Deputy Commissioner of the concerned District from time to time.
- The DTFC is conducts personal interview of the applicants and recommends the deserving cases on the basis of the viability of the project to the concerned banks.
- The recommended cases will be sponsored to the concerned banks for consideration of finance under the captioned scheme.
- The bank will sanction 90% of the project cost in case of General category and 95% of the project cost in case of Special category of beneficiary / institution and recommend their cases to the KVIB for arranging 2 weeks duration compulsory EDP training.
- KVIB will arrange EDP training. Once the beneficiary undergone EDP training, the bank will disburse full amount suitably for setting up of project.
- Once the 1st installment of bank finance is released, the bank will submit margin money claim in the prescribed proforma [which is 25% of the project cost in case of General category and 35% of the project cost in case of Special category] to the designated Nodal Banks.
- Once the margin money is released in favor of the loanee, it should be kept in the term deposit receipt of 3 years at branch level in the name of the beneficiary / institution. During this period, no interest will be paid on the TDR and no interest will be charged on loan to the corresponding amount of the TDR.
- The margin money component [back ended subsidy] will be credited to the borrowers loan account after 3 years on the basis of 100% Physical Verification Report of the said unit.
- 100% Physical Verification of the actual establishment and working status of the units, setup under PMEGP will be done by KVIC.
May also check for Credit Guarantee Fund scheme details in the other posting.