How to prepare a project report or recommendation for bank loan?

The credit officer of a bank would consider all the information provided by you in the project report while appraising your credit proposal. The office note/recommendation is prepared on the basis of key information available in the  report, as well as information collected by the bank from their internal and external investigation sources to support the credit decision. The  office note by the bank is normally written in the same fashion a project report is prepared by the loan applicant containing  details of promoter’s educational qualification, professional experience, management capability, details of group companies, operations, balance sheet, profit & loss account, Government subsidy/grant, which all help in assessment of nature of finance required to the borrower. Further, information on proposed product with capacity to be built up and process involved, project location, cost of project and means of financing thereof, availability of utilities, technical arrangements, market prospectus and selling arrangement, environmental aspects, profitability projection and cash flows for the entire period of loan repayment, are the matter of importance while appraising the proposals.

A brief outlining  of a project report is shown below which can be used in bank loans. (Usually branch recommendation also prepared in the same format).

1. Management:

Background of company (Company Profile), details of group companies if any. Promoters’ background which includes promoters’ educational background, business experience, promoters’ family background, financial soundness of the promoters with source of income, details of personal properties of individual promoters.  Profiles of key personnel in the organization if any may also be included in the report.

2. Technical feasibility:

The Technical Feasibility details consist of particulars of how you will deliver a product or service. The feasibility details include where your business will be located, space requirement including built-up area, (own/rented), availability of electricity, water and other utilities, the technology used, plant and machinery needed, license requirement, detailed schedule of implementation, availability of raw material, manpower (type of people working) transportation, storing facility needed etc.

3. Commercial viability:

Demand for the product, particulars of existing and potential market,  marketing strategy, Marketing tie-up if any, projected market share for the proposed product, selling price, profit margin, inherent strength to withstand competitions etc.

4. Project cost and means of finance:

The cost involved in proposed project setup, means of financing such as owners’ equity, loans from friends and relatives,subsidy if any,  requirement of credit facilities from the bank viz. working capital facility, term loan, and non-fund based limits etc. Projected Balance sheet, profit and loss accounts along with Funds flows and Cash flows statements.

[In case of existing company balance-sheet and profit and loss accounts of previous 2-3 years should be attached along with Management Discussion and Analysis (MD&A) in which management provides an overview of previous year’s operation and how the company performed financially in the current year.].

In conclusion, project report shall demonstrate the assessment of the Techno-Economic feasibility of the business and also satisfying the requirement of capital/margin brought by you and your capacity to run the business.

Related articles;

1. How to analyse a Cash flow statement
2. How to analyse a funds flow statement?
3. What are the papers examined by banks for credit appraisal?
4. What is working capital finance?
5. How to appraise term loan proposals
6. What is the method for assessment of  Non-fund based Limits?