Types of Loans and Process of Applying for a Loan

1. CEP Program Role of CMA – Project Finance By Bank’s/NBFC’s The Institute Of Cost Accountants of India Aurangabad Chapter Rajput & Associates CMA Shailendrasing Rajput Mob.: 9421406569 Off.: 0240-2488559 Email : rajputandassociates@Hotmail.com

3. Types of Loans • Secured Loan • Unsecured Loan • Working Capital Loan (CC/OD) • Project Finance • Retail Loans

4. Process of applying for a loan Taking a loan is not as complicated as most people think. The only thing which should be paid attention to is that genuine documents should be submitted to the bank on time. Different types of loans in India require different types of documents. Few steps involved while applying for a loan are: • Loan Application Form: An application form for loan is provided by the banks which should be filled correctly and the type of loan you need should be mentioned clearly. • CIBIL Check: CIBIL Check is done in order to count the scores of your credit cards. CIBIL collects and maintains the records about the loans you have to pay apart from the loan you are applying for. If the score of your credit card is higher, loan can be sanctioned to you easily. • Submission of Required Documents: The customers need to produce their identity proofs and other certificates to that bank so that they can trust you for providing loan. Hence, submission of the required documents is a very important procedure involved in the sanction of a loan. • Approval of Loan: Now, it’s the banks’ job to go through the documents and details properly and then sanction you the loan. Once the documents are approved by the banks they approve their customers for the loan.

5. Point of Consideration by Banks: • CIBIL; • Financial Viability / Feasibility; • Collateral Security; • Legal Clearance of Project and Securities to be provided to bank; • Valuations of Security.

6. What is the CIBIL Score? The CIBIL Score is a 3 digit numeric summary of your credit history. The Score is derived by using the details found in the “Accounts” and “Enquiries” sections on your Credit Information Report (CIR) and ranges from 300 to 900. The closer your Score is to 900, the more favorably your loan application will be viewed by a credit institution. The Score plays a critical role in the loan approval process. What does my Score mean? An individual’s Credit Score provides a credit institution with an indication of the ”probability of default” of the individual based on their credit history. What this means in simple English is that the Score tells a credit institution how likely you are to pay back a loan (should the credit institution choose to sanction your loan) based on your past pattern of credit usage and loan repayment behavior. The closer you are to 900, the more confidence the credit institution will have in your ability to repay the loan and hence, the better the chances of your application getting approved. CIBIL NOTE.pdf

7. What are the major factors that affect my Score? There are 4 major factors that affect your Score. These are described below: 1. Late payments or defaults in the recent past: Your payment history has a significant impact on your Score. Hence, if you have missed payments on any of your existing loans, over the last couple of years, your Score is likely to be negatively affected because it indicates that you are having trouble servicing your existing obligations. 2. High utilization of Credit Limits: While the balances on your loans will only reduce over time as payments are made, you must be diligent about making timely payments on your credit cards. While increased spending on your credit cards may not necessarily negatively affect your Score, an increase in the current balance on the card over time is an indication of an increased repayment burden and may negatively impact your Score. It’s always prudent to not use too much credit. 3.Higher percentage of Credit Cards or Personal Loans (commonly known as Unsecured Loans) on your CIR: A higher concentration of home loans or auto loans (commonly known as Secured Loans) is likely to be more favorable for your Score than a large number of unsecured loans. Although unsecured loans offer easy access to finance, it’s also by far the most expensive form of credit. More the number of unsecured loans with high utilization, larger are the payments resulting from its high rate of interest. 4. Seeking Excessive Credit: If you have made many applications for loans in a short period of time or have recently been sanctioned new credit facilities, a credit institution is likely to view your application with caution. This behavior of seeking excessive credit indicates that your debt burden is likely to, or has increased and you are less capable of honoring any additional debt, leading to a marginal impact on your Credit Score.

8. Kinds of Securities for Bank Credit 1.Personal Security: Personal security refers to the guarantee given by the borrower or by a third party in lead of pledging a tangible asset. Since advancing loan against personal guarantee is very risky banks rarely grant loan against such security unless the borrower has special and long relationship with the bank. The character, integrity, financial solvency, and social status are important factors that are looked into before sanction of loan against personal security. 2.Collateral Security: When the lender feels the security provided by the borrower is not sufficient or it may be difficult to recover the dues smoothly, the lender may ask for additional security to be provided by the borrower himself or by others on behalf of the borrower. In case of any default by the borrower, the collateral securities will come in hand to service and recover the loan.

9. Analysis to be made: • Nature of Business Manufacturing Service Trading • Depending upon the nature of business one need to understand the requirement and utilization of borrowed funds. • Understanding the business make it simple to make the projections of the business.

10. Strengths: Characteristics that give the business an advantage over others. Weaknesses: Characteristics that place the business at a disadvantage relative to others SWOT Threats: Aspects in the environment that could be challenging for the business. Opportunities: Aspects in the environment that the business can exploit to its advantage.

11. Various revenue making opportunities of the business: Classified information of Revenue sources of business need to be understood and put in Project report. It will help banker to understand the revenue model to make himself positive for project appraisal. Project Report.xls PIA CHART.xlsx

12. Expenses pre- and post- Implementation of project: Preliminary expenses to be analyze; All expenses of business need to be understood very minutely and accordingly project them for specified period. Also consider inflation and natural growth rate while projecting the expenses. Try to make difference between Fixed and Variable expenses which will help to calculate your BEP.

13. Analyze Pay Back Period using Discounting factor. (Time Value of Money). • Calculate Break Even Period, which will help you to ascertain Loan Term to be demanded to Bank. • Create flow chart, Pie Chart & Graphical representation of Project which will help banker to understand the project and its intricacies quickly. • Margin Money ( Generally 20-25% of Project Cost)

14. Ratio Analysis: Current Ratio ( Standard should be greater than 1.3) Debt Equity Ratio (Standard should be 2) DSCR (Debt Service Coverage Ratio)(Should be >1) DSCR = Net Operating Income / Total Debt Service • CMA Data (Credit Monitoring Arrangement)

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