Complete Business Loan Guide: Documents, Cash Flow and Repayment

1. What is a Business Loan?

A Business Loan may provide eligible finance for working capital, inventory, machinery, equipment, expansion or other lawful requirements. Finance may be secured or unsecured and structured differently depending on the lender and facility.

2. Eligible entity types

• Proprietorship
• Partnership
• LLP
• Private or public company
• Self-employed professional
• Other eligible business constitution accepted by the lender

3. Common purposes

• Working capital
• Inventory purchase
• Business expansion
• Machinery or equipment
• Renovation of eligible business premises
• Technology or operational requirements
• Eligible project expenditure
• Refinancing or balance transfer, where available
• Other lawful business purposes accepted by the lender

4. Common facility types

Availability and facility structure are lender-specific.

5. Business assessment factors

• Business vintage and continuity
• Turnover
• Profitability
• Cash flow
• Banking conduct
• Average bank balance
• Cheque, EMI or mandate returns
• GST and tax records
• Existing loans and limits
• Promoter credit profile
• Industry and business risk
• Security, where applicable
• Proposed use of funds
• Repayment capacity

6. Constitution and KYC documents

• PAN and accepted KYC for relevant applicants and key persons
• Proprietorship proof, partnership deed, LLP or company documents
• Business-address and operational proof
• Udyam registration, where applicable
• GST registration and returns, where applicable
• Licences or professional registration, where applicable
• Partner, director, promoter, guarantor or beneficial-owner information, where requested

7. Financial and banking records

• Business bank statements
• Personal bank statements, where requested
• Income Tax Returns
• Computation of income
• Profit and Loss Account
• Balance Sheet
• Audit reports, where applicable
• GST returns
• Existing loan, CC, OD and repayment details
• Debtor and creditor information, where requested
• Quotations, project estimates or machinery invoices
• CMA data, projected financials or DPR, where requested

8. Consistency of records

9. Turnover, profit and cash flow

Turnover represents revenue and does not by itself establish repayment capacity. Profitability indicates earnings after expenses. Cash flow shows whether operating costs and debt repayments can be met when due. High turnover does not guarantee eligibility if cash flow, profitability or banking conduct is weak.

10. Repayment assessment

Lenders may use different ratios and internal methods, including existing obligations, eligible cash flow, debt servicing ability and proposed EMI. There is no single guaranteed approval ratio.

11. Security and guarantees

Secured facilities may require acceptable collateral and checks. Unsecured facilities may still require personal guarantees, business undertakings, mandates or other conditions. Understand which assets, guarantees and obligations are being offered.

12. Charges

• Processing fee
• Applicable taxes
• Documentation charges
• Legal and valuation charges for secured facilities
• Annual or renewal charges for applicable limits
• Penal or late-payment charges
• Foreclosure or prepayment conditions
• Insurance or add-on products, if any
• Other charges disclosed by the lender

13. Sanction conditions and end use

• Sanctioned amount
• Facility type
• Purpose and end-use conditions
• Security and guarantees
• EMI or repayment schedule
• Interest or APR
• Drawing conditions, where applicable
• Documentation and disbursal conditions
• Financial-information reporting requirements
• Default and recall conditions