1. Project Financing

Concept

Project finance is the financial analysis of the complete life-cycle of a project. Typically, a cost-benefit analysis is used to determine if the economic benefits of a project are larger than the economic costs. The first step of the analysis is to determine the financial structure, a mixture of debt and equity, that will be used to finance the project. Then, identify and value the economic benefits of the project and determine if the benefits outweigh the costs.

Features of Project Finance

• Capital Intensive Financing Scheme: Ideal for ventures requiring huge capital.
• Risk Allocation: Some risks are shifted to the lender, benefiting sponsors.
• Multiple Participants Applicable: Large-scale projects allow multiple parties.
• Asset Ownership Decided at Project Completion: Managed by SPV.

Stages of Project Finance

• Pre-Financing Stage: Identification, risk minimization, feasibility check.
• Financing Stage: Arranging finances, documentation, verification, and payment.
• Post-Financing Stage: Monitoring, project closure, and loan repayment.

Advantages of Project Finance

• Risk Management
• Effective Debt Allocation
• Economies of Scale
• Reduced overall Asset Cost

Disadvantages of Project Finance

• Complexity
• Compliance & Documentation
• Constant Expert Assistance
• Higher Transaction Cost

Parties to Project Finance

• Sponsors: Equity shareholders of the parent company.
• Banks/Financial Institutions: Lenders providing secured loans.
• Special Purpose Vehicle (SPV): Manages project execution and operation.
• Host Government: Provides regulations, tax concessions, and permits.
• Off-Takers: Bound by agreements ensuring market demand.
• Suppliers & Contractors: Provide raw materials, design, operations, and maintenance.

2. Term Loan

Concept

Term loans are loans offered to businesses for capital expenditure and expansion, having a specific amount for a specific tenor, generally up to 5 years. The term loan is to be repaid in regular payments, such as Equated Monthly Installments (EMIs) over a defined period of time. These loans are tailor-made to suit the various financial needs of businesses.

Features

• Fixed loan amount
• Fixed tenor of payments
• May or may not require collateral
• Fixed or Floating Interest Rate
• Fixed Repayment Schedule

Advantages

• Affordable EMIs
• Limited Cost of Loan
• Hassle-free documentation and process
• Lower Interest Rates
• Minimal Documentation
• Flexible Repayment
• Quick Disbursal of Funds

Disadvantages

• Good CIBIL score required
• Good business stability with profitability required
• High penal charges on default in non-repayment of Loan/EMI

Documents Required

• Passport Size Photograph
• KYC Documents
• Business Documents and other details
• Company Profile
• Income Tax Returns and Audited Financial Statements of last 3 years
• Bank Statement of last 12 months

3. Bank Overdraft

Concept

Bank Overdraft is a financial instrument in which money can still be withdrawn from the current or savings account, even if the account balance goes below zero. It is an extension of monetary limit offered by banks, and that money is said to be ‘overdrawn’. An authorized overdraft limit is assigned to the customer depending on their relationship with the bank. The customer can withdraw money up till the assigned limit. The banks charge interest at a specified rate on the money withdrawn in the form of an overdraft.

Advantages

• Helps in managing cash flow of business
• Fulfils urgent cash needs
• Interest is paid only on utilized amount
• Short-term borrowing
• Less paperwork
• No collateral required by banks
• Flexible use of cash in small portions

Disadvantages

• Higher interest rate
• Offered only to bank account holders
• Sanctioned limit depends upon applicant’s financials
• Not suitable for long-term finance

4. Cash Credit / Working Capital Loan

Concept

A Cash Credit (CC) is a short-term source of financing for a company. In other words, cash credit is a short-term loan extended to a company by a bank. It enables a company to withdraw money from a bank account without keeping a credit balance. The account is limited to only borrowing up to the borrowing limit. Interest is charged on the amount borrowed. A cash credit loan is a cash loan given to a company to meet its working capital requirements. It is a short-term source of finance with a tenure of up to 12 months. The borrowing limit is decided on the basis of the applicant’s credit history or creditworthiness, which is based on the company’s structure of the current assets and liabilities.

Features

• Borrowing Limit: Determined by the creditworthiness of the borrower.
• Interest: Charged only on the running balance.
• Minimum Commitment Charge: Applied to ensure usage.
• Collateral Security: Credit is secured using stocks, fixed assets, or property.
• Credit Period: Generally up to 12 months.

Advantages

• Source of Working Capital Finance
• Minimal Documentation and Fast Processing
• Flexibility in Cash Withdrawals
• Tax Deductible
• Interest Charged only on the Amount Utilized

Disadvantages

• High Rate of Interest
• Minimum Commitment Charges
• Difficulty in Receiving Based on Turnover, Accounts Receivable Balance, Expected Performance, and Collateral Security Offered
• Temporary Source of Finance

5. Machinery Finance

Concept

A machinery loan helps you obtain financing to buy new machinery and equipment for your business. It helps you improve business productivity, without affecting normal operations. Increase in production or output results in higher profits from sale and distribution.

Types of Equipment Loans

• Manufacturing equipment loan - This loan is for those who need equipment for manufacturing goods.
• IT and office equipment loan - Exclusive for office businesses needing IT equipment like computers, laptops, projectors, servers, etc.
• Construction equipment loan - Provides funding for construction equipment.
• Corporate Aviation equipment loan - For the aviation industry, funding airport and in-flight equipment.
• Medical equipment loans - Provides funding for hospital and clinical equipment.
• Electronic and appliances - Funding for electronic devices and appliances needed in a company.

Benefits

• Used to refurbish, modify, or change existing machinery/equipment.
• To repair faulty machines or upgrade equipment.
• Helps new businesses finance machinery and equipment.
• No collateral required from most lenders.
• Flexible loan repayment options with easy EMIs.
• Used as a working capital loan or equipment finance.

Documents Required

• KYC documents.
• Latest passport-sized photographs.
• Identity Proof: PAN Card, Aadhaar Card, Passport, Driving License, etc.
• Address Proof: Passport, Voter’s ID card, driving license, utility bills, etc.
• Business registration proof: Partnership deed/ Certified copies of MOA / AOA.
• Last 3 years’ Income Tax Returns and audited Financial Statements.
• Last 1 year’s bank statement.
• Existing facility sanction letter.
• Original and valid quotation of machine – to be purchased.
• Additional documents, as required by the bank or lender.

6. Unsecured Business Loan

Concept

An unsecured loan is a loan that doesn't require any type of collateral. Instead of relying on a borrower's assets as security, lenders approve unsecured loans based on a borrower’s creditworthiness.

Advantages

• No risk to existing assets like a home, vehicles, other commercial property, or long-term assets.
• Quicker to obtain as compared to secured loans, thus, faster approval.
• Builds Credit History.

Disadvantages

• The interest rates will normally be higher than for secured loans.
• For those without squeaky clean credit, unsecured business loans can have a particularly high debt load.
• Since lenders get no collateral, for the unsecured business loan, they assess your credit score. You need to have a high credit score to avail business loans without guarantee.

Who are Unsecured Loans best suited to?

• Businesses who do not have high-value assets (or do not wish to offer these as collateral) stand to benefit from unsecured finance. They are given the freedom to borrow money to assist with expansion and growth, while maintaining peace of mind that their assets are not at risk.
• Businesses looking to embark on a capital-intensive project can benefit for the same reason: they are able to carry out the project safe in the knowledge that risk to business property and assets is minimised.
• Industries such as retail and leisure are also well suited to unsecured finance, as the terms of lending favour businesses who are prone to have unexpected expenses that need only short-term loans to bridge the gaps.

7. Housing Loan / Loan Against Property

Loan Against Property – Concept

A loan against property is a secured loan that is sanctioned by taking an asset as mortgage. The asset remains as collateral until the entire loan is repaid. This secured loan can be an alternative to unsecured personal loans, offering a higher loan amount, longer tenure, and no specific end-use restriction.

Features

• High Loan Amount
• Low Rate of Interest
• Quick Disbursal
• Convenient Repayment Tenor
• Minimal Documents
• Easy Eligibility Criteria
• Easy Balance Transfer Facility

Types of Property Eligible for LAP

• Self-owned residential property
• Self-owned & self-occupied residential property
• Self-owned but rented residential property
• Self-owned piece of land
• Self-owned commercial property
• Self-owned but rented commercial property

Housing Loan – Concept

A home loan is an amount borrowed from a bank or financial institution at a specified interest rate, repaid in monthly EMIs. The property is taken as security by the bank, and in case of default, the lender can recover the outstanding amount by selling the property.

Types of Home Loans

• Home Purchase Loan: For buying a home.
• Home Improvement Loan: For repairs or renovations.
• Home Construction Loan: For building a new house.
• Land Purchase Loan: To buy a plot of land for construction.
• Home Extension Loan: To add new rooms or extend the house.
• Joint Home Loan: For two or more applicants, e.g., spouses.
• Home Loan Balance Transfer: To switch your loan to a lender offering better terms.
• Top Up Home Loan: To borrow additional funds over the existing loan.