Your financial history, business credit and revenues will be checked. Your audited balance sheets will be carefully studied.
You will be eligible for a loan if you have:
• Satisfactory credit rating for the last three years
• The latest audited balance sheet available
• Satisfactory financial performance in terms of sales/turnover and profits. Negative variance, if any, should not be more than 10%.
• A Total Debt-equity Ratio not higher than 4.5:1 and total Term Liability and Equity Ratio not more than 3:1.
• Average DSCR (Debt Coverage Service Ratio) not less than 1.75:1
After satisfying themselves that you run a successful business, banks will also require an additional guarantee in the form of collateral, before they release the funds.
Collateral assets can be your house, bank deposits, gold or machinery. To get the maximum value of your collateral (to get it valued at a fair price), it is essential that you have the correct titles and relevant records to its ownership.
Some banks offer overdrafts against land and building for financing working capital requirements and long-term margin requirements of SMEs. This is given against the security of unencumbered land and building belonging to the business or promoters of the business. One restriction in case of a residential or commercial building is that it should not be more than 25 years old at the time of sanction.
The advantage of using fixed deposits and NSC certificates is that you will be charged very low interest rates.
If you have all the relevant papers in order, getting that much-needed loan will not be a problem, as most banks have special cells and schemes for SMEs.