What this covers
Preparing what a bank needs in order to appraise a proposal. For a term loan that means the project report — cost of the project, means of finance, promoter contribution, projected profitability, cash flow, debt service coverage and sensitivity to the assumptions the case rests on. For working capital it means the credit monitoring arrangement statements, assessment of the limit on the method the bank applies, and the security and margin position.
Statutory basis
Lending is a commercial decision, so no statute governs a project report. What governs it in practice is the bank's credit policy inside the Reserve Bank of India's framework — the directions on loans and advances, the income recognition and asset classification norms, and the special mention account categories a bank must report an account into once repayment falls behind. Working capital is assessed on the turnover method for smaller limits, following the Nayak Committee, or on the maximum permissible bank finance methods derived from the Tandon Committee, and banks now have discretion in which they apply. Micro, small and medium enterprise status under the MSMED Act, 2006 governs Udyam registration and the payment period buyers must observe under section 15; where a payment to a micro or small enterprise is outstanding beyond that period, the deduction is deferred under the Income-tax Act, 2025 — formerly section 43B(h) of the 1961 Act.
Who it applies to
A business seeking a term loan for plant, premises, equipment or an expansion. A business seeking a cash credit or overdraft limit for the first time, or a renewal, where the bank requires the statements annually whether or not anything has changed. And a promoter testing whether a project can service the debt it would need.
What we do
- 1Establish the requirement before the paperwork — what the money is for, over what period it will be repaid, how much the promoters will put in, and whether the need is long-term or a working-capital gap being funded as a term loan.
- 2Build the project cost and the means of finance so that they reconcile line by line: land, building, plant, installation, contingency and margin for working capital on one side; term loan, promoter contribution, subsidy and unsecured loans on the other.
- 3Prepare the projections from your own assumptions, stated explicitly — capacity and utilisation, selling price, input cost, wages, power, interest and the working-capital cycle in days — each written down so it can be argued rather than buried in a spreadsheet.
- 4Test the case on the ratios the appraising officer will compute: debt service coverage year by year and on average, current ratio, total outside liabilities to tangible net worth, interest coverage and break-even.
- 5Prepare the credit monitoring arrangement statements in the bank's formats — existing and proposed limits, the operating statement, the balance-sheet analysis, the current asset and liability statement, the permissible-finance computation and the funds flow — from audited, provisional and projected figures reconciled to the accounts.
- 6Assess the working-capital limit on the bank's method against the security, margin and drawing-power position the sanction will require; answer the appraisal queries in writing; and once sanctioned, set up the reporting the terms impose.
What you receive
- Project report
- Cost, means of finance, projections, ratio analysis, sensitivity, and the assumptions in the open.
- CMA statements
- The credit monitoring arrangement set in the bank's formats, reconciled to the accounts.
- Assessment working
- The working-capital computation on the bank's method, with the drawing-power position.
- Query responses
- Written replies to the appraisal queries, with the working.
- Post-sanction calendar
- The reporting the sanction requires, and the covenants to monitor.
Documents and information required
Audited financial statements for the past three years and the current provisional accounts · income-tax returns and computations for the same years · goods and services tax returns, which the bank will reconcile against declared turnover · bank statements of all accounts for the past year · existing sanction letters with terms, security and repayment schedules · quotations for the assets to be acquired · net-worth statements of the promoters and guarantors · Udyam registration · stock and debtor ageing · orders in hand.
Key dates
A working-capital limit is reviewed annually, and the statements are normally required within a few months of the financial year end — a renewal allowed to lapse can be treated as an irregularity in the account, so the review date is the one to work backwards from. Stock and book-debt statements are submitted monthly, and drawing power is recomputed from them. On projections: they are yours. We test them for internal consistency and arithmetic and say where a lender is likely to push back, but a forecast cannot carry an assurance opinion, and no undertaking is given on whether a facility will be sanctioned.