What are the Documents required for Term Loan and Cash Credit (CC)?

TERM LOAN

A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms. Term loans are normally meant for established businesses with sound financial statements. In exchange for a specified amount of cash, the borrower agrees to a certain repayment schedule with a fixed or floating interest rate. The repayment is usually done in regular, predictable instalments (like EMIs) that cover both the principal amount and the interest.

Term loans are specifically given for acquisition of some kind of asset.

DOCUMENTS REQUIRED FOR TERM LOAN

1. KYC & Other Documents

• PAN Card of the Applicant

• Aadhar Card of the Applicant/ Partners/ Directors·      

• Passport sized photograph

• Address Proof (Utility bills / Rent Agreement)

• UDYAM Registration (if available)

• GST Registration Certificate

• Partnership Deed / LLP Agreement / Certificate of Incorporation

• Trade License

• If the project is for expansion of prior projects

  a.     Bank Statements of last FY

  b.     ITR of last 3 FY

  c.     Financial Statement of last 3 FY

  d.    GST Returns of last 12 months

2. Quotations

A quotation is a price estimate provided by the supplier for the machinery, equipment, or other assets to be purchased. It helps the bank verify the cost of the project, assess the required loan amount, and ensure that the funds are used for the intended purpose. It usually contains the supplier's details, description of the items, price, taxes, and payment terms.

3. Project Report

A project report provides a clear overview of the proposed business or expansion plan. It explains the purpose of the loan, the estimated project cost, sources of funding, expected income and expenses, and future profitability. It helps the bank understand whether the project is practical, financially viable, and capable of generating enough income to repay the loan.

 

4. Projections ( Estimated & Projected Balance Sheet and Profit & Loss)

 

Projected financial statements provide an estimate of the business's future financial performance and position over the loan tenure. They include the projected Profit & Loss Account, Balance Sheet, and, where applicable, Cash Flow Statement, prepared using realistic assumptions regarding sales, operating expenses, production capacity, market demand, and business growth. These projections demonstrate the expected profitability, liquidity, and financial stability of the business, enabling the bank to evaluate the project's feasibility, assess the borrower's repayment capacity, and determine whether the proposed business is capable of generating sufficient cash flows to meet its financial obligations and sustain long-term growth.

5. Collateral Security

The assets procured from term loan are compulsorily hypothecated / mortgaged to the bank. Banks often require additional assets to be pledged as security which may include land, buildings, residential or commercial property, fixed deposits, jewellery or other valuable assets acceptable to the bank.

 

The above mentioned is a concise list of documents required for availing the term loan. Once the documents are submitted, the bank assesses the project's viability and the borrower's credit profile, including the CIBIL score. If satisfied, the bank sanctions and disburses the loan as per its terms and conditions.

 

NOTE: Additionally, the borrower must execute the required loan documents, including stamp papers for hypothecation of financed assets and creation of collateral security.

Post-disbursement, the borrower is required to submit annual audited financial statements and other documents as prescribed by the bank.

 

Eligible borrowers may also avail subsidies or interest subvention under various Central and State Government schemes, subject to the applicable eligibility criteria like (KVIC, PMEGP, Mudra, CLCSS, CGTMSE, Startup India, Stand-up India, NABARD Schemes, ATISIS, AIF, PM Aawas, ECLS etc)

CASH CREDIT

A Cash Credit (CC) loan is a type of working capital facility that helps businesses manage their day-to-day operational expenses, such as purchasing inventory, paying suppliers, salaries, and other routine business costs. Instead of receiving the entire loan amount upfront, the borrower can withdraw funds as needed within the approved limit. Interest is charged only on the amount actually used, making it a flexible and cost-effective financing option for meeting short-term business needs.

DOCUMENT REQUIRED FOR CASH CREDIT

• Estimated Projected Report showing the amount of sanctioned limit ( 20% to 25% of the estimated annual turnover)

• KYC & Other Documents (mentioned above)

 

NOTE: The Cash Credit needs to be renewed every year and it can be enhanced in case the turnover of the entity increases based on the previously sanctioned limit.

It has a special feature which allows the borrower to borrow an additional amount of 20% of the sanctioned limit for a maximum period of 90 days.

In both the cases, Insurance of the assets is compulsory.

 

The above-mentioned process is a concise overview. Please feel free to reach out for a detailed discussion tailored to your requirements.