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CERTIFICATE

This is certify that Miss Ketki Telore student of Huzurpaga Mahila Vanijya Mahavidyalaya completed her project on A STUDY ON DOCUMENTATION IN THE LOAN PROPOSAL PROCESS FOR BUSINESS UNITS for the partial fulfillment of the B.B.A Part-III course of the University of Pune for the Academic Year 2010-2011 as per the concerned firms requirements.

Project Guide: Mrs.Neha Puranik. Place:-Pune.

Principal of H.M.V.M Mrs.Vaijyanti Chiplonkar. Place:-Pune.

AKNOWLEDGEMENT
Every project report is blend of students hard work and the guidance received by the student from the seniors experience. I am student of BBA being a student of professional course for the practical purpose. I am supposed to submit report for the purpose. At the outset, I would like to express my sincere gratitude for the assistant and support of all those who helped me to carry out this project successfully. Firstly, I am very great full to Mrs. Neha Puranik (Project guide) her technical guidance and suggestion which she provided at various stages throughout the project. I would like to thank my classmates who helped me in all possible ways to complete in all possible ways to complete this mountainous work. I am sure that this project will serve the purpose.

DECLARATION
This is to declare that this project report entitled A study on documentation in the Loan Proposal process for Business Units is a record of genuine work done by Miss.Ketki Telore under the supervision of institutes project guide Prof. Neha Puranik in partial fulfillment of the requirements for BBA of University of Pune. I declare that this project is a fare project and not submitted to any University before.

INDEX
Sr. no.
1

Names Of Chapters
Introduction to Loan Proposal

Page no.
5-34

2 3 4

Objectives & Purpose Bank Profile & Company Profile Projected Statements

35-36 37-47 48-61

5 6

Bibliography Loan Application Form

62-63 64

Conclusion

65-66

INTRODUCTION OF LOAN PROPOSAL

LOAN PROPOSAL
Loan proposals are formal, written documents that small businesses must prepare when they approach potential lenders or investors for funding. A complete loan proposal package should consist of completed loan application forms (if required), and a comprehensive business plan with complete financial statements. Ideally, the loan proposal should present information about the small business, its future prospects, and its financing needs in a straightforward manner. All the pertinent information the lender or investor might need in making a decision should be provided in a logical format. Loan proposals must be thorough yet concise, convincing yet honest. The aim is to answer all the questions that a lender or investor is likely to ask without overstating the facts and figures. Preparing a solid loan proposal can be very time consuming, but it has proven to be the best way for a small business owner to demonstrate his or her understanding of the business and its financial demands to potential lenders and investors. Furthermore, the business plan portion of the loan proposal can serve as a sort of handbook for running the business. It presents criteria against which management's strategy and decisions can be continually evaluated. Overall, a formal loan proposal should illustrate why the small business is a good credit risk by placing it within the context of its market and competition, explaining any peaks and valleys in cash flow, and emphasizing the strengths of the management team.

ELEMENTS OF A LOAN PROPOSAL


The Small Business Administration publication Handbook for Small Business outlines some of the elements that should be included in a good loan proposal. It should begin with a summary page that provides contact information for the company, the amount of the loan request, the company's intended purpose for the funds, and the proposed repayment terms. The next section should feature a description and summary of the business, including a brief history. The description should also include information on the size and potential for growth of the business's main markets, an analysis of the competition, and notes on any emerging industry trends. Other useful information might include an explanation of any unique aspects of the business's product or service, information on local advertising efforts, and a long-term growth plan. The next major section of the loan proposal features information on the company's management team, including brief resumes outlining the experience of key employees. This section might also include notes on the business's current staffing level, along with an analysis of future staffing needs. The names and contact information for accountants and attorneys should also be provided. The next section consists of the loan request itself. This section should provide the potential lender with details about the amount of funds needed, how they will be used, what collateral is available to secure the loan, the company's proposed repayment terms, and evidence of the small business's ability to repay the loan. Another section should include supporting financial data, including a current balance sheet and income statement, three years of historical financial statements (for existing businesses), projections of cash flow for the next year, and personal financial statements for the business's primary owners or investors. Another important loan-related section should supply information on the business's current sources and uses of credit, including the names and contact information for lenders and trade creditors. The final section of the loan proposal can include a variety of miscellaneous information that might help the lender to reach a
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favorable decision. For example, the small business owner could attach business licenses, copies of the partnership agreement or articles of incorporation, copies of tax returns, lease information if renting facilities, and information on insurance coverage.

MAKING THE PROPOSAL


In his book Doing Business with Banks, Gibson Heath recommended that the loan proposal be written using layman's terms, and illustrated with computer generated graphics and charts that highlight key areas of the proposal and provide a visual representation of the ideas presented. Overall, the loan proposal must anticipate any objections the lender or investor might have to providing funds for the small business, and then provide the information needed to overcome the objections. In an article for Inc., Bruce G. Posner solicited comments from bankers regarding the most glaring weaknesses they saw in small business loan proposals. They all expressed a desire to see evidence that the business owner had thought the loan proposal all the way through. "Business owners come in with these beautiful three-ring binders. The numbers are in nice, straight columns, but a lot of these people haven't thought about the assumptions they've made and what it will take to do what they say they'll do," said Jeffrey C. Gardner of U.S. Bancorp. "We need to know where the numbers come from. The sad part is that many people don't know what the projections are about because their accountant made all the assumptions." Dev Strischek of Barnett Bank of Palm Beach County echoed these comments, noting that "The biggest weakness I see is a lack of specificity and a lack of preparation. A lot of people don't really know what they need the money for or how much they need.We like to see a cash-flow analysishow much they plan to sell, how much they spend on overhead, how much for inventory, and what's available for debt service. It's easier to do business with people who've thought things through." After creating a formal, written loan proposal, the next step is to present the proposal to a potential lender. Heath recommended that the small business owner take one last look at the loan proposal before taking it to the bank, in order to verify the numbers and be ready to answer any questions with confidence. It is important that, rather than just dropping the loan proposal off, the small business owner meet with the lender to review the loan proposal in detail. The in person presentation should focus on just a few key points of
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the proposal. It is intended to improve the lender's understanding of the business and the loan request, so that he or she will be able to defend the proposal before other decision makers. At the conclusion of the meeting, the small business owner should ask when a decision might be expected. It is also important for the small business owner to be available during that time period to answer any follow-up questions.

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Principles of Bank Lending


The precaution to be taken by the bankers and the principles to be taken care of, while granting advances in relation to specific securities are discussed in detail subsequently. By way of introduction, an attempt is being made in the following discuss the general principles to be borne in mind by a banker while granting loans and advances

Liquidity:
The term liquidity implies the ability to produce cash on demand. A bank mainly utilizes its deposits for the purpose of granting advances. These deposits are repayable on demand or on the expiry of a specified period. In either case, the banker must be ready to meet these liabilities whenever necessary. As such, he has many outstanding contracts for future delivery of money. The banker should always bear in mind that he is the guardian of a very delicate mechanism which paves the way for future economic development and which, if disturbed will create monetary disequilibrium with all the incidental evil effects. Herein lays the importance of ensuring that the advances granted by the baker are as liquid as possible.

Profitability:
Banks are essentially commercial ventures. It is true that excessive and unjustifiable profits can only be at the cost of the customer, in so far as higher lending rates push up production costs, and in the ultimate analysis, adversely affect society in general. The strong operating profits allow for full prudential provisioning. High net profits allow for allocation to capita; and reserves, which is essential for any bank to maintain its competitive viability and expand its lending operations. The shareholders of a bank are entitled to reasonable dividends.

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Safety and Security:


The banker should ensure that the borrower has the ability and will to repay the advances as per agreement. Before granting a secured advance, he should carefully consider the margin of safety offered by the security concerned and possibilities of fluctuations in its value. If it is an unsecured advance, its repayment depends on the creditworthiness of the borrower and that of the guarantor, wherever applicable.

Purpose:
The banker has to carefully examine the purpose for which the advance has been applied for. In case the advance is intended to be utilized for productive purposes, it could be reasonably anticipated that cash flows arising from productive activities will result in prompt repayment. The banker has to be careful to monitor the exact purpose for which the advance is actually utilized. There is always the possibility that the advances, once granted, may be diverted for purposes other than that indicated by the borrower at the time of application. Thus, there should be proper provisions for effective post credit supervision.

Social responsibility:
While admitting that banks are essentially commercial ventures, a bank should not forgot the fact that is not enough that only people of means are given bank finance. Through productive efforts bank finance should make people creditworthy, and turn them into people of means. Technical competence of the borrower, operational flexibility and economic viability of the project, rather than the security which the borrower can offer, should be considered in evaluating a loan proposal.

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Industrial and Geographical diversification:


The banker should aim at spreading the advances as widely as possible over different industries and different localities. This would enable him to compensate any losses which might arise as a result of anticipated factors adversely affecting particular industries and/or particular localities.

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Cash Credit
With many of the advantages of a standard line of credit, cash credit is the issuance of a short term cash loan to a business. A cash loan of this type if often utilized to meet the expenses associated with a specific task or project, with repayment expected within a period of one year or less. Successfully receiving cash credit and paying off the loan within terms can open the way for the business to be extended a more liberal line of credit for future use. Cash credit works in a manner that is very similar to that of a line of credit. The difference is that cash credit establishes a cash account with the lender institution that can be drawn upon by the debtor. This is different from a conventional loan, in that the debtor does not have to receive the entire amount of the loan at one time. Cash credit is also different from a line of credit, as the amount of resources extended are pre-approved and the repayment schedule is the same whether the debtor is actively using the cash credit or not.

Overdraft Financing
Overdraft financing is provided when businesses make payments from their business current account exceeding the available cash balance. An overdraft facility enables businesses to obtain shortterm funding - although in theory the amount loaned is repayable on demand by the bank. There are several important factors to consider when assessing the appropriateness of an overdraft as a source of funding for SME's: - The amount borrowed should not exceed the agreed limit ("facility").The amount of the facility made available is a matter for negotiation with the bank; - Interest is charged on the amount overdrawn - at a rate that is above the Bank Base Rate. The overdraft financing
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Overdraft financing is provided when businesses make payments from their business current account exceeding the available cash balance. An overdraft facility enables businesses to obtain shortterm funding - although in theory the amount loaned is repayable on demand by the bank. There are several important factors to consider when assessing the appropriateness of an overdraft as a source of funding for SME's: - The amount borrowed should not exceed the agreed limit ("facility"). The amount of the facility made available is a matter for negotiation with the bank; - Interest is charged on the amount overdrawn - at a rate that is above the Bank Base Rate. The bank may also charge an overdraft facility fee; - Overdrafts are generally meant to cover short-term financing requirements - they are not generally meant to provide a permanent source of finance - Depending on the size of the overdraft facility, the bank may require the SME to provide some security - for example by securing the overdraft against tangible fixed assets, or against personal guarantees provided by the directors The amount of an overdraft at any one time will depend on the cash flows of the business, the timing of receipts and payments, seasonal trends in the sales and so on. This can be illustrated using the data below. In the example cash flow statement given below, the SME generates a positive overall cash flow in a full year. Bank may also charge an overdraft facility fee; - Overdrafts are generally meant to cover short-term financing requirements - they are not generally meant to provide a permanent source of finance - Depending on the size of the overdraft facility, the bank may require the SME to provide some security - for example by
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securing the overdraft against tangible fixed assets, or against personal guarantees provided by the directors The amount of an overdraft at any one time will depend on the cash flows of the business, the timing of receipts and payments, seasonal trends in the sales and so on. This can be illustrated using the data below. In the example cash flow statement given below, the SME generates a positive overall cash flow in a full year.

Fund Flow
Fund Flow Statements summarize a firms inflow and outflow of funds. Simply put, it tells investors where funds have come from and where funds have gone. The statements are often used to determine whether companies efficiently source and utilize funds available to them.

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How to Prepare a Fund Flow Statement


Fund flow statements are prepared by taking the balance sheets for two dates representing the coverage period. The increases and decreases must then be calculated for each item. Finally, the changes are classified under four categories: (1) Long-term sources, (2) long-term uses, (3) short-term sources, (4) short-term uses. It is also important to zero out the non-fund based adjustments in order to capture only the changes that are accompanies by flow of funds. However, income accrued but received and expenses incurred but not received reckoned in the profit and loss statement should not be excluded from the profit figure for the fund flow statement. Fund flow statements can be used to identify a variety of problems in the way a company operates. For example, companies that are using short-term money to finance long-term investments may run into liquidity problems in the future. Meanwhile, a company that is using long-term money to finance short-term investments may not be efficiently utilizing its capital.

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Methods of Granting Advances

Cash credit:
Banks in India favor the granting of loans in the form of cash credit. It is estimated that out of the total bank credit, this method accounts for more than 50%. Under this method, the banker allows the customer to borrow up to a certain amount known as the Cash Credit Limit. Usually the borrower is required to provide security in the form of pledge or hypothecation of tangible securities. In some cases, the limit is granted on the guarantees furnished by sureties acceptable to the bankers. It may be noted that it is not necessary for the borrower to avail of the full cash credit limit in one installment.

Overdrafts
This method of granting advances resembles the cash credit system. However, to avail off an overdraft facility; the borrower has to open a current account. This account is allowed to be overdrawn up to a certain limit. As in the case of cash credit, the borrower has to pay interest only on the amount actually overdrawn and only for the period during which it is utilized.

Bills discounting and purchasing


This method of granting loans is also a short term facility intended to provide current working capital. Under this method, the bankers advances money on the securities of bills of exchange after deducting a certain percentage, technically known as Discount, from the face value of the bill . This method of providing financial accommodation is heavily favored by conservative bankers
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according to whom the earning assets of a commercial bank should consist mainly of short-term self liquidating productive loans.

Issue of Letter Of Credit


Any arrangement however named or described whereby a banker(the issuing bank) acting at the request and in accordance with the instructions of a customer (the applicant of the credit)is to make payment to or to the order of a third party(the beneficiary)or is to pay accept or negotiate bills of exchange(drafts)drawn by the beneficiary, or authorize such payments to be made or such drafts to be paid, accepted or negotiated ,by another bank against stipulated documents and compliance with stipulated terms and conditions.

Loans
The term loan is popularly used to denote the granting of an advance in lump sum, generally on the basis of securities acceptable to the bankers. The distinguishing feature of a loan is that interest on it is payable on the entire amount, whether it is fully utilized or not it is granted for a definite period and the borrower is given the facilities to repay it in one lump sum or in installments . As far as a banker is concerned, the operating cost of a loan is lower as compared to a cash credit or an overdraft. This method of granting an advance has the advantage of strengthening the financial discipline in the use of bank credit. follow up , supervise and control of end use of bank credit could be made more effective in the case of loans as compared to cash credits and overdrafts .

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Secured Advances: Forms of Security


A banker secures the advances by means of:

Bankers Lien:
A bankers lien is a general lien which confers a right to a retain properties in respect of any general balance due by debtors to the bankers. Bankers have a general lien on all securities deposited with them in their capacity as bankers by a customer, unless there is an express contract or circumstances that show an implied contract inconsistent with the lien .Bankers right of sale extend only to fully negotiable securities. As far as such securities are concerned the bankers may exercise his right of sale after serving reasonable notice to the customer.

Pledge:
A Pledge is a contract where by an article is deposited with a lender as a promise or security for the repayment of a loan or performance of a promise. To complete a contract of pledge, delivery of the goods to the banker is necessary. Delivery of the title documents relating to the goods, or the keys of the godown where the goods are stored, may be sufficient to create a valid pledge, strictly speaking where no possession is given, it is known as hypothecation and is elaborated in the next section.

Mortgage:
Section 58 of the Transfer of Property Act defines a Mortgage thus A mortgage is the transfers of an interest in a specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to pecuniary liability . In terms of above definition, the initials of mortgage are as follows. 1. There must be a transfer of interest in an immovable property.
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2. The immovable property must be a specific one. 3. The consideration of a mortgage may be either money advanced or to be advanced by way of loan or the performance of a contract.

Hypothecation Mortgage of movables


A Mortgage of movables may be defined as a transfer, by way of security of the general ownership of the chattel, subject to the equity of redemption of the mortgagor. Mortgage of movables can be made by mere parole and without transfer of possession. However, a subsequent mortgagee with possessive, in the absence of notice of previous mortgage, will get priority over a prior mortgage without possession. In the strict sense, the term mortgage is used only in connection with immovable. In the case of movables, the term pledge and hypothecation are generally used. Where a mortgage of movables is created by delivery of possession of goods, it is known as a pledge, and where no possession is given it is known as hypothecation.

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Employment of Fund
Before dealing with the different forms in which the bankers funds are employed profitably, it will not be out of place to consider the purposes for which banks keep their reserves and the considerations governing the size of reserves. The term Finance simply put is perceived as equivalent to Money. In Economics we read about money & Banking, about Monetary Theory &Practice and about Public Finance. But finance exactly is not money; it is the source of providing funds for a particular activity. The banking sector which forms the bedrock of the Indian financial system falls under the regulatory ambit of the Reserve Bank of India under the provisions of the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934. The Reserve Bank also regulates select AIFIs. Consequent upon amendment to the Reserve Bank of India (Amendment) Act in 1997, a comprehensive regulatory framework in respect of NBFCs was put in place in January 1997. The financial market in India comprises the money market, the Government securities market, the foreign exchange market and the capital market. A holistic approach has been adopted in India towards designing and development of a modern, robust, efficient, secure and integrated payment and settlement system. The Reserve Bank set up the Institute for Development and Research in Banking Technology (IDRBT) in 1996, which is an autonomous center for technology capacity building for banks and providing core IT service.

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Important Factors Governing Reserve


With regard to other demands, given below are the principle circumstances which influence the reserve requirement in the bank. 1. Habits of customers & business conditions of

locality:-In a general way it may be said, that the amount


of reserve required by a bank depends upon the habits of the customers and the business condition of the locality, which the bank is serving. 2. Use of cheque currency:-Where the cheque currency is popular, the need for hand to hand currency is less and consequently smaller reserves will suffice, because payments for these cheques will, to a very large extent, be made by transfer entries in the books of the bank. 3. Bankers clearing house: -Another important factor which affects the reserve to be kept by a bank is whether or not, there is a Bankers Clearing House in the locality where the bank is carrying on its business. 4. Nature of accounts: If a large majority of the current accounts are of a fluctuating nature, as is the case with the accounts of share- brokers, cotton merchants and bullion dealers, the banker will require a comparatively larger cash reserve because there is the chance of most of them withdrawing the major portions of their balances at a time, when there are heavy fluctuations in the prices of shares, cotton and bullion.

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5. Size of average deposits: -A bank which has only a few


large deposits has to keep a larger reserve than a bank with numerous small accounts because the larger the number of clients of a bank, the less is the likelihood of any concerted movement towards a withdrawal of deposits.

6. Nature of advances and amount of bills discounted: -The reserve a bank should keep is also
affected by the consideration of the amount of money invested by him in the discount of commercial paper.

7. Currency chests: -The mechanism of currency chests is


also of assistance to the Central and State Governments as well as the State Bank of India, its associates and the nationalized banks inasmuch as it enables the Treasuries and bank branches to work with relatively small balances and save themselves the loss involved in locking up of funds in their tills. The chests also enable the exchange of rupee coin for notes and supply of notes of lower denominations for those of higher denominations and vice- versa, or issue of new notes for old and soiled notes.

8. Remittance facilities scheme: -With the objective of


facilitating transfer of fund between different centers in the country so as to secure the most economical use of the available financial resources; the Reserve Bank has been operating the Remittance Facilities Scheme since 1940. The parties which may avail of the facility are Central and State Governments, Local Funds, Scheduled banks, non-scheduled banks, State and central co-operative banks and the general public.
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Examination of Financial Statements


Whenever a banker advances money to partnership firms and limited companies, it is advisable to study their balancesheets before an advance is sanctioned. This is because the study of the balance-sheet will enable the banker to know the financial position of a potential borrower. It would enable the banker to know whether the money which is to be advanced is likely to be repaid in course of time or not. The study of the balance- sheet also reflects the nature of management of the concern whose balancesheets are scrutinized. This is more important because a banker would always like to advance money to concerns which are managed efficiently on the basis of sound principles of company management or financial management. The balance- sheet is a statement showing the financial position of a concern as on a particular date. It indicates the debit balances and credit balances on a particular date on the asset side and the liability side of a company. In other words, the balancesheet is a statement showing what the company owns and what it owes to others. It also indicates the source of funds for the company and the use to which the funds are put. Such a statement, therefore, is certainly useful to a banker in considering the advance proposal. The next question which arises is how the banker should look at a balance-sheet, especially from the view point of leading money to his potential borrowers. The following important points have to be noted in studying the balance-sheet:1. The banker should study the balance-sheet not of one year but should study the balance- sheet of 3/5 years. This is because the balance- sheet of one year may not give a correct picture of the financial affairs of a concern. The year may be exceptionally a good year or a bad year and, therefore, it may be difficult to arrive at a judgment as regards the financial affairs of a concern. But if the balance-sheets of 3/5
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years are studied, it would give a trend as to the progress made by the company not only financially but also in other aspects. This would, therefore, enable the banker to form a judgment not only in regard to the way in which a company or business in managed. 2. The banker must see to it that the balance- sheets which are studied are for full period of 12 months. Otherwise, if a balance- sheet is for six months only and other balancesheets are for different periods, it would not be possible for a banker to compare the financial position. The comparison of balance-sheets will give an idea of a trend in financial affairs over a period of time. 3. The banker must see to it that the balance- sheet is certified as true and is duly signed by the auditors of the company. 4. It is not sufficient to study only the balance- sheet of a company. It would only give a partial picture of the affairs of the company. A balance- sheet, therefore, has to be studied not in isolation but in relation to other financial statements such as profit and loss account, trading account, income and expenditure account, etc. this would enable the banker to compare the figure which are relevant in arriving at a decision in considering a proposal for an advance. The next question which arises is what a banker should look for in a balance-sheet. The banker should look at a balance-sheet only from one angle & that is from the view point of the leading bank. As a leading banker, he is interested in seeing to it that the money which is advanced comes back.

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With the Help of Ratio


A ratio is a relationship of one item in the balance- sheet to another item and this relationship between two items in the balance-sheet can be expressed either as a percentage or as a proportion. The most important ratios which a banker should study in the balance-sheet from the view point of liquidity are as under:-

1. Current Ratio:-Current ratio is a ratio between current


assets and current liabilities .Current are those which can be converted into cash within a short period. Current liabilities are the liabilities which fall due for payment in a short period. The current ratio is obtained by dividing current assets by current liabilities. At present times, a current ratio of 2:1 is considered to be a satisfactory ratio. Thus the ratio is calculated or worked out as:

2. Acid Test or Quick Ratio:-This is also called Liquid


Ratio. This is a part of the current ratio and is calculated by comparing liquid resources. This ratio is of great importance for financial institutions and banks. If current ratio is good but quick ratio is low it will indicate a dis- proportionately high investment in stocks, as the quick assets exclude inventory or closing stock from current assets. The ratio of less than 1 will be undesirable, a ratio of 2 is ideal. The ratio is worked out as :

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3. Gross Profit to Sales Ratio :- Profits are an important


item in the balance-sheet. If the balance- sheet indicates a rising profit from year to year, it is considered to be a good sign. This ratio will also reflect the efficiency or otherwise of management behind the company. Standard ratios worked out for different industries are published in some of the journals and, therefore, it is easy for a banker to make an inter-company comparison. The ratio is calculated as:

4. Debtors Ratio :-This ratio indicates what part of the sale


is on credit basis and what part of sales is on cash basis. This indicates the period of credit which is extended by the borrower to its buyers. This ratio is also called Debt Collection Period and is calculated as :

5. Solvency Ratio :-This ratio measures the ability of the


concern to repay all external debts or outside liabilities out of its own assets on a long- term basis. This ratio is obtained by relating net tangible assets to total outside liabilities:

The study of these ratios will enable the banker to decide whether the proposal for an advance should be consider on merit or not if other factors are otherwise favorable. There are many more ratios but they are not of much importance to a banker.

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Examination of statements: General consideration


The following general hints regarding the analysis of financial statements will, we trust, be found useful:

Nature of business:In first place the banker should ascertain the nature of the trade or business retail, wholesale or manufacturing- of the applicant for loan. This is necessary in order to consider the various items of the statement.

Recent statement:-Secondly, the statement should relate to a


fairly recent period as a statement showing the customers position in some earlier years may not correctly reflect the true state of affairs at the time the person applies for accommodation. It is also desirable to see that the statement does not refer to a period when merchants, in the particular trade to which the borrower belongs, have their indebtedness at its lowest point. Moreover, the information given in the statement should be verified, as far as possible, by independent inquiries, particularly when the same has not been duly audited by a reliable firm of auditors.

Differentiation of liquid and other assets:Thirdly, the statements should differentiate between the assets, which are of a liquid nature and those which are more or less fixed.

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Liquid assets to be sufficient to meet short-term liabilities: Fourthly, in examining a statement, the banker must
see whether or not they would be borrower can meet his current or short-term liabilities with the help of his quick or liquid assets. It is necessary to do so, because the continuation of the business may depend largely upon meeting the short-term liabilities as they mature.

Difference in the book value and realization value of assets:-Fifthly, it must be borne in mind that the value of the
assets given in the statement is ordinarily expressed to show their worth to the trader for use in a going concern. The banker should remember that normally they will fetch much less in case of a good sale.

Cash:-We shall now deal separately with the principal items of


the statement and comment upon them. One of the chief items, on the asset side of the statement of a borrower, is the cash in hand and at the bankers.

Current assets:-Classification of assets into current assets


should be strictly as per particular Bank and Reserve Banks guidelines and it is to be ensure that the other assets are not included under this head while assessing working capital requirements or analyzing the balance-sheet.

Bills receivable:-As regards bills receivable, the banker should


ascertain, whether or not, they strictly trade bills received from customers, to whom the goods have been sold.

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Stock in trade:As regarded the stock, it may not be feasible always to get inventory made and its value estimated by an independent and reliable value, and therefore, the bank may generally have to rely upon the borrowers valuation.

Stock exchange securities:As regards the stock exchange securities held by the applicant for loan, the banker should try to find out the object with which they are carried as an asset. If the borrower has invested in securities, funds which he cannot profitable use in his own business, his credit position is strengthened, but on the other hand, if securities happen to be of a speculative nature, the banker should regard them with some suspicion.

Fixed assets: -In case of fixed assets the banker should ascertain
whether the land and buildings owned by the borrower are not to subject to any incidental charges such as rates, taxes, etc.

Sundry assets:There may be certain sundry assets such as leasehold, goodwill, patents, trademarks, etc., whose values should generally be ignored by the banker, as, in the case of liquidation of the business, they are not likely to fetch any prices.

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Intangible and fictitious assets:Intangible assets are those assets which carry some value to the concern (but are not tangible) like goodwill, patents, copyrights, Trademarks etc. Although in strict commercial terms these items are valuable, for analytical purposes, the bank should not attach any value to these items, as already stated.

Liabilities:On the liabilities side the banker should first see whether the capital is large enough for the nature and turnover of the business. If the capital is inadequate the business will be hampered. As already stated, it is ordinarily not the function of a bank to supply fixed capital to an industry because commercial banks as far as possible keep their assets in a liquid form. When the concern applying for a loan is banking only with one banker, the amount and the terms of the credit facilities enjoyed by it will be known to him.

Profit & Loss account:The banker should examine the profit & loss account statements as they will show, whether or not, the business is a paying one. The banker should not only satisfy himself that all the expenses, chargeable to the profit & loss account, have been deducted before arriving at the figures of net profits, but also that sufficient amounts have been set aside for depreciation of certain assets, which need replacement after the expiry of certain periods and for payment of income-tax, etc. He has to see that profit shown is real & not fictitious. The profit & loss account is important statement as it shows the income & expenditure of a concern during the year.

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Term Loans
Where a loan is granted for a fixed period exceeding one year and is repayable according to the schedule of repayment, it is known as term loan or term finance. The period of term loan may extend up to 10 years and in some cases even more than 10 years. Where the period exceeds one year but not, say 5 to 7 years, it is commonly known as a medium-term loan.

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Working Capital Finance

Working Capital requirement:Working capital is the capital requirement for day-to-day requirements of the firm. This is also called changing or circulating capital. The working capital is required for maintenance of inventories, for extending credit to customers and for maintaining a cash balance. The total requirement is met partly by the credit that the suppliers of goods and services extend to the firm. The remaining part is to be provided by the firm out of its own internal sources or short-term borrowings from banks.

Measurement or assessment of working capital:There are following methods for measuring or assessing the working capital of the concern: I. II. Net working capital Operating or working capital cycle.

Sources of working capital:The working capital required by a concern can be financed from internal as well as external sources. The various sources of working capital are: i. ii. iii. Net gain from operations. Sale of fixed assets Bank borrowing

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OBJECTIVE & PURPOSE

35

Objective & Purpose

The objectives of the project can be stated as follows: 1) To understand the documents required to be submitted for pressing the loan. 2) To find out the procedure to acquire the bank loan. 3) To determine the requirements of finance. 4) To determine the working of bank 5) To have a comparative study of the loan schemes and the interest rate offers. 6) To learn installment patterns of loan repayment. 7) To learn types of loans.

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COMPANY PROFILE

37

Company Profile

Name of the firm- BLUE DARK

Address- 44/6/2 Magarpatta, Hadapsar, Pune 411048.

Name of Proprietor- Ketki Mohan Telore.

Date of Establishment- 1st April 2011

Registered Office- Sub Registrar Haweli No. 16 Sinhagad Road Manikbag

Nature of Activity- Manufacturing of Auto Parts

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Location
The proposed project is located in Magarpatta, Hadapsar which is little far from human migration and close to other industries. Because this industry produces large amount of sound which is harmful for human and beneficial for us for transportation of good this is important part of this industry. It also helps to reduce the cost of transportation and takes less time to deliver the goods.

Manufacturing Process
Material is been purchased as per the given information. After the material is been purchase it is tested and cutting of material is done by the given size. Job phasing is done as per the drawing and sharp edge is been drabber.

Procedure
First operation is that the rough surface is been drabber at the size of (8mm). Cross drabber of job is done at (17mm). At this stage, the drilling of job is been finished slitting of job is done on milling machine as per the sketch all over the champing of the job is done and after all this procedure the last operation is inspection of job is done.

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BANK PROFILE

40

Cosmos Bank

Now its in your Cosmos Interest to get a Loan, because Cosmos Loans are now available at reduce interest rates w.e.f 1st August 2009. Cosmos SME : 12.5% and Cosmos Education: 10%. loan transfer/takeover at reduced rate of interest possible. Banking and a lot more only at The Cosmos Co-op Bank Ltd.

Establishment in 1906, The Cosmos Co-operative Bank Ltd (Cosmos Bank) is one of the oldest urban co-operative banks in the country, reputed for its quality services. Today, the Cosmos Bank is one of the leading Multi-state Scheduled Co-operative Banks. The bank has carved a niche in the urban banking sector with its rich heritage, integrity, adherence to the prudent banking practices, technology savvy customer services. Cosmos bank has attained multi-faceted growth not only in terms of financial indicators/standards but also in overall expansion of activities. Established in 1906, the Cosmos Co-operative Bank Ltd. is the second oldest bank in the country. The Bank has recently completed glorious 105 years of service successfully. It has attained multi state scheduled status in 1997. The Bank is a professionally managed 'Financial Institution', a benchmark of
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credibility and innovation. Bank has nurtured its traditional values in business practices and in serving the small customers. At the same time it has adopted new technologies and advanced banking tools to add value to its services. Cosmos Bank has carved a niche in the banking sector due to its rich heritage, integrity, adherence to prudent banking practices, technology advancement, customized products and services and most of all due to its experienced, qualified and professional Board of Directors. Setup Financial & Geographical Financial setup of the bank as on 31.03.2010 was Rs.11835 crore, comprising of Deposits of Rs.7213 crore and Advances Rs.4622 crore. Cosmos Bank operates through 104 branches and 9 Extension Counters in India spread across 5 States and in 28 Major Cities, which are as follows: Mumbai, Pune, Nagpur, Aurangabad, Nashik, Baramati, Jalna, Kolhapur, Satara, Phaltan, Sangli, Solapur, Bhusawal, Jalgaon. Madhya Pradesh Indore. Andhra Pradesh: Hyderabad, Vijaywada Banglore. Belgaum, Nipani. Karnataka : Surat, Ahmedabad, Baroda, Ankaleshwar, Gujarat: Rajkot, Bhuj, Gandhidham, Bhavnagar Maharashtra : Social Obligations Cosmos Foundation is a public charitable trust founded under the initiative of shareholders of Cosmos Co-op Bank on 16.10.1987. The registered office of the foundation is at 269/270, Shaniwar Peth, Pune-30. The main objectives of the foundation are 1. To give loans to Cosmos Bank members at concessional rates for pursuing higher education abroad. 2. To give medical help to members upto specified limits.
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3. To felicitate the awards of members who excel in Std. X & XII examinations. 4. To promote educational spirit and to maintain, support, propagate intellectual qualities educational facilities, etc. 5. To arrange educational seminars, conferences, etc. 6. To grant relief in the event of natural calamities such as earthquakes, floods, famine, 7. The Foundation also provides outsourcing facility 8. Special arrangement as Executor & Trustee for preparation & execution of Will especially for the Senior Citizens. Future Plans 1. Internet Banking 2. Utility Terminal

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The business loan processing system can be defined in six steps


Step One- Receipt of Business Loan Application and Executive Summary: The business loan process begins after a business loan application and Executive Summary has been received. Our Assessment Division thoroughly reviews your business loan application. We assess the value of the project by performing market and industry analyses.

Step Two- Verification of Facts: Verification of the income, liabilities and assets information provided by the borrower. These are almost always verified in detail, through employers, banks, credit bureaus and other third parties. Step Three-preparation of the Loan Package: A checklist of business loan documents is sent to the borrower. Step Four-Evaluation and Underwriting: The business loan documents package is verified for accuracy and honesty. Once the verifications are assembled the loan package is submitted to formal underwriting. This may be done electronically through automated underwriting systems, but even when a customers business loan is approved in this manner, an underwriter reviews the entire file and provides a final clearance for funding. The underwriter is usually not the originating loan officer.

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Step Five- Condition, Letter of Intent (LOI) and Commitment: Most loans are approved with some type of conditions, often a requirement to provide further or updated verifications. Here the borrower may be involved again to assist in collecting copies of documents needed to finish the file. A Letter Of Intent or LOI is a document outlining an agreement between two or more parties before the agreement is finalized. LOIs resembles written contracts but are usually not binding on the parties in their entirely. Many LOI, however, contain provisions that are binding, such as nondisclosure agreements, a covenant to negotiate in good faith, or a stand-still or no-shop provision promising exclusive rights to negotiate. A Commitment Letter is formal offer by a lender making explicit the terms under which it agrees to lend money to lend money to a borrower over a certain period of time. It is also known as a standby loan commitment or commitment letter or firm commitment lending also called Loan Commitment. When this step is cleared, parties are ready to close the transaction.

Step Six-Closing: Processing times vary greatly. An important consideration for a borrower wishing to complete processing quickly and agreeably is to be very responsive to the loan officer and his processors when they call for required documents or actions. Business Loan will usually not close without complete compliance with these requests.

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Objectives of the Scheme: The scheme aims at providing financing support for the working capital needs of the small entrepreneurs loans up to 25 Lacs.

Eligibility Criteria: The applicant should be regular member or nominal member of the Bank. Applicant should have banking relation with bank. The applicant shall be engaged with trading/industrial/service activity with valid Licenses.

Type of Facility: Operative Overdraft facility with cheque book. Margin: 25% of the marketable Security value in banks favour (limit will be 75%).

Security (Prime): In the form of immovable constructed property in Corporation limits: if the outside Corporation Limit-TP Plan and Collector NA is required. The property shall be self occupied. Any other assignable security such as NSC, LIC, Shares, FDRs etc in support of the above condition.
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If the shares are offered as security, the maximum limit will be restricted to Rs. 20 Lacs. Security (Collateral): Stock & Debtors will be collateral security, only initial stock/debtors statement will have to be submitted. Period: On demand or 3 years, Renewal with necessary documents.

Rate of Interest: At present @13% p.a. Interest Rates are subject to change from time to time. Processing fee: @0.10% of the Loan Demand.

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PROJECTED STATEMENTS

48

Projected Statements

- Bank Repayment Statement - Projected Income Statement -Projected Balance Sheet -Cash Flow Statement

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Bank Repayment Statement for the Year 2011-2012


Month Principle Amount
900000 885000 870000 855000 840000 825000 810000 795000 780000 765000 750000 735000

Principle Repaid
15000 15000 15000 15000 15000 15000 15000 15000 15000 15000 15000 15000

Interest

Installment

April May June July August September October November December January February March

9750 9588 9425 9263 9100 8938 8775 8613 8450 8288 8125 7963

24750 24588 24425 24263 24100 23938 23775 23613 23450 23288 23125 22963

Total

180000

1066278

286278

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Bank Repayment Statement for the Year 2012-2013


Month Principle Amount
720000 705000 690000 675000 660000 645000 630000 615000 600000 585000 570000 555000

Principle Repaid
15000 15000 15000 15000 15000 15000 15000 15000 15000 15000 15000 15000

Interest

Installment

April May June July August September October November December January February March

7800 7638 7475 7313 7150 6988 6825 6663 6500 6338 6175 6013

22800 22638 22475 22313 22150 21988 21825 21663 21500 21338 21175 21013

Total

180000

82878

262878

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Bank Repayment Statement for the Year 2013-2014


Month Principle Amount
540000 525000 510000 495000 480000 465000 450000 435000 420000 405000 390000 375000

Principle Repaid
15000 15000 15000 15000 15000 15000 15000 15000 15000 15000 15000 15000

Interest

Installment

April May June July August September October November December January February March

5850 5688 5525 5363 5200 5038 4875 4713 4550 4388 4225 4063

20850 20688 20525 20363 20200 20038 19875 19713 19550 19388 19225 19063

Total

180000

59478

239478

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Bank Repayment Statement for the Year 2014-2015


Month Principle Amount
360000 345000 330000 315000 300000 285000 270000 255000 240000 225000 210000 195000

Principle Repaid
15000 15000 15000 15000 15000 15000 15000 15000 15000 15000 15000 15000

Interest

Installment

April May June July August September October November December January February March

3900 3738 3575 3413 3250 3088 2925 2763 2600 2438 2275 2113

18900 18738 18575 18413 18250 18088 17925 17763 17600 17438 17275 17113

Total

180000

36078

216078

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Bank Repayment Statement for the Year 2015-2016


Month Principle Amount
180000 165000 150000 135000 120000 105000 90000 75000 60000 45000 30000 15000

Principle Repaid
15000 15000 15000 15000 15000 15000 15000 15000 15000 15000 15000 15000

Interest

Installment

April May June July August September October November December January February March

1950 1788 1625 1463 1300 1138 975 813 650 488 325 163

16950 16788 16625 16463 16300 16138 15975 15813 15650 15488 15325 15163

Total

180000

12678

192678

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Projected Income Statement


Particular Sales (-)Cost of Goods Net Gross Profit 2011-12 3000000 2100000 900000 2012-13 3500000 2275000 1225000 2013-14 2014-15 2015-16 3800000 4000000 4500000 2356000 2400000 2610000 1444000 1600000 1890000

Less: Expenses Salary Rent Insurance Electricity bill Telephone bill Stationary Miscellaneous Maintenance Depreciation on F.A. Interest on Term Loan Net Profit before Tax @30% Tax 210000 60000 20000 38500 10000 3500 2000 50000 83350 106278 225000 62000 20000 40000 10000 3500 2000 51000 83350 82878 300000 65000 20000 42000 8000 3000 2200 48000 83350 59478 310000 68000 21000 43000 8500 3000 2000 48500 83350 38078 315000 70000 21000 43500 8800 2800 2000 49000 83350 12678

316372 94912

645272 193582

812972 243892

976572 292972

1281872 384562

Net Profit After Tax

221460

451690
55

569080

683600

897310

Projected Balance Sheet


Liability Opening Stock Capital Add: Net Profit After Tax Less: Drawing Closing Balance Term Loan Less: Repayment of Loan 2011-12 NIL 500000 221460 60000 661460 900000 180000 720000 2012-13 661460 -451690 70000 1043150 720000 180000 540000 2013-14 2014-15 2015-16 1043150 1532230 2125830 -569080 80000 -683600 90000 -897310 100000

1532230 2125830 2923140 540000 180000 360000 360000 180000 180000 180000 -NIL

1381460 1583150

1892230 2305830 2923140

Assets: Fixed Assets Less: 10% Depreciation 833500 83350 750150 Deposit Cash Balance 63000 568310 750150 83350 666800 63000 853350 666800 83350 583450 63000 583450 83350 500100 63000 500100 83350 416750 63000

1245780 1742730 2443390

1381460 1583150
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1892230 2305830 2923140

Projected Cash Flow Statement


Particular Cash Inflow Cash Capital Term Loan Cash from Operation Cash Outflow Less: Payments
Repayment of Loan

2011-12

2012-13

2013-14 2014-15

2015-16

2100000 2275000 2356000 2400000 900000 900000 ----

2610000 -1890000

1225000 1444000 1600000

2300000 1793310 2297350 2845780 36327330

180000 106278 94912 210000 60000 20000 38500 10000 3500 2000 50000 833500 60000 63000 568310

180000 82878 193582 225000 62000 20000 40000 10000 3500 2000 51000 -70000

180000 59478 243892 300000 65000 20000 42000 8000 3000 2200 48000 -80000

180000 36078 292972 310000 68000 21000 43000 8500 3000 2000 48500 -90000

180000 12678 384562 315000 70000 21000 43500 8800 2800 2000 49000 -100000

Interest on Loan Income tax Salary Rent Insurance Electricity bill Telephone bill Stationary Miscellaneous Maintenance Purchase of Fixed Assets Drawing Deposit Cash Balance

853350
57

1245780 1742730

2443390

Statement of Term Loan Repayment


Particular Opening Balance Repayment Closing Balance 1st 900000 180000 720000 2nd 720000 180000 540000 3rd 540000 180000 360000 4th 360000 180000 180000 5th 180000 180000 NIL

Statement of Interest Payable @ 13% P.A.

Quarter I II III IV Total

1st 28763 27301 25838 24376 106278

2nd 22913 21451 19988 18526 82878

3rd 17063 15601 14138 12676 59478

4th 11213 9751 8288 6826 36078

5th 5363 3901 2438 976 12678

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RATIO ANALYSIS

59

Ratio Analysis

Gross Profit Ratio-

Particular

2011-12

2012-13

2013-14

2014-15

2015-16

Net Gross Profit Sales Gross Profit


*100

900000 3000000 30%

1225000 1444000 1600000 1890000 3500000 3800000 4000000 4500000 35% 38% 40% 42%

Sales

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2011-12 2012-13 2013-14 2014-15 2015-16 Series 1

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Net Profit Ratio-

Particular

2011-12

2012-13

2013-14 2014-15 2015-16

Net Profit After Tax Sales Net Profit *100 Sales

221460

451690

569080

683600

897310

3000000

3500000 3800000 4000000 4500000

7.38

12.9

14.97

17.09

21.36

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BIBLIOGRAPHY

62

1) WWW.COSMOS BANK.COM 2) TANNANS Banking Law and Practices in India

63

LOAN FORM

64

CONCLUSION

65

Conclusion

1) I can conclude that applying for bank loan is very lengthy and tiring procedure that should be done by Banks electronically. 2) However, it is a very risky matter but commerce will not only save time but also help to maintain the document in a good condition something that I can learn from this project is that it is not very simple to pursue a business loan there are large number of document that are to be submitted and that they should also be cleared by Bank. 3) Also after visiting a Private bank as well as Government bank one can understand that there is a huge difference between the loan procedure as well as interest rates. 4) Government bank lends loans at a Prime Lending Rate that is fixed by the Reserve Bank of India whereas the Private Bank decides the interest rate depending on the project of the company and their financial position. 5) However, a bank loan is not the only way the only source of finance if possible debentures should be issued as they have benefit of tax shield. 6) This project has increased my knowledge about financial operations. 7) I have also realized that this practical knowledge gained during the project will help me greatly.

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