Business Loan appraisal

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.

Points considered in loan appraisal:

1. Earlier relation with the bank

2. Net worth of the promoter (Income Tax & Wealth Tax statements)
3. Experience in the proposed business or other professional experience
4. Credit facilities enjoyed from any other financial institution(s)
5. Credit facilities of group companies, if any, in case of a company being the
borrower
6. Limits assessment – Term Loan, CC/OCC, BG, LC requirements
7. Co-obligant / Guarantor and their net worth
8. Details of Collateral Security
9. Share holding pattern for corporate companies
10. Enumeration of applicant’s profile w.r.t. any government schemes proposed to be
availed by the applicant.
11. Verification of applicant’s credentials in RBI defaulters list, Willful defaulters
list, Caution list and ECGC Specific approval list
12. Performance of the applicant’s business in case of an existing business
13. Examination of Balance Sheet, Ratio Analysis

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 14. Working Capital assessment in terms of Inventory method, Turnover method,
Cash Budget method.
15. Details of Primary Security (Created out of TL)
16. Marketing, Technical, Economic & Commercial feasibility
17. Interest calculation based on Benchmark PLR
18. Noting on subsidy and margin money
19. Loan tenure and period of moratorium
20. Legal opinion on collateral security
21. Processing charges, guarantee fee
22. Internal credit rating
23. Assessment of application w.r.t. DPR submitted by the borrower
24. Compliance of borrower on various other provisions
25. Release of sanctioned loan

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.

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