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Writer's pictureAsif Hussain

What are the documents required for availing Term Loan and Cash Credit (CC) loan

Updated: May 6, 2023

A lot of time you plan to take loan for business enhancement but you stand confused or clueless about what all documents are required and what are annual documents to be supplied to the bankers to keep the loan active (such that they don’t deduct any penalty charges). Keep reading to know more.



    Documents required for term and CC loan

A. Term Loan


A Term loan gives borrowers a sum of money up front in exchange for certain borrowing terms. Term loans are often intended for well-established firms with stable financial accounts (Although there are provisions for greenfield, i.e new projects). The borrower commits to a specific repayment schedule with a fixed or fluctuating interest rate in exchange for a defined quantity of cash.


Term loan is given only for the purpose acquisition of some asset. (It is important to note that from a term loan you can’t acquire any stock or pay your stock creditors)


Documents required for term loan


1. Quotation:


These are the documents that contains the quote from the probable purchases from whom the borrower intends to take supplies of fixed assets once the loan is sanctioned.


2. Project Report:


A project report is a document that summarises the facts of a proposed project, including the project's aims, financial predictions (that includes detailed estimated projected schedule with CMA), steps how it will proceed with the marketing of the produced/ acquired goods, detailing on its target costumers and all other points related to the projects supply chain.


3. KYC and other documents:


KYC is the basic documents, that banks need for processing the loan amount like


  • Certificate of Incorporation

  • Partnership/ Trust/ Society deed

  • Address proof (like rent agreement, consent, Aadhar, Trade License, other industry specific license and approvals etc)

  • PAN Card

  • Udyam Registration (If Available)

  • If the project is enhancement of previous project or the entity has any other previous background then

o Last FY Bank statements

o Last 3 filed ITR Copy

o Last 3 signed audited financials

o Last 12 GST return copy


4. Projection (Estimated projected):


This is a schedule that shows the entire estimated and projected income, expenditure, asset, liability and cash flows until the year by which the loan is repaid.


This shows the detail calculation of project cost (bifurcating the owners contribution and bank loan component), payback period, repayment schedule (showing detailed break of principal and interest repayment), break even analysis, key financial ratios like GP %, NP %, DSCR, Debt to equity ratio etc. (Note: these ratios are calculated for all the estimated and projected year till the time loan is finally repaid).


5. Collateral documents:


Here, the term loan taken to acquire the asset is to be compulsorily mortgaged/ hypothecated to the bank. Along with this the bank requires additional collateral for its comfort like Land, Building, FDs, securities, LIPs, Jewelleries etc.


The above is an inclusive list of documents required to avail the term loan. After all, above is collated and submitted and if bank finds the project to be strong enough and have been satisfied with the borrower’s profile check (CIBIL etc), the bank will disburse the loan.


Note: Additionally, here the borrower will have to buy stamp papers for hypothecation of the purchased assets and creating deed of the security given as collateral.


Apart from this, bank will require additional yearly compliance from the borrower side, i.e yearly submission of signed audited financials and few certified figures.


Also, borrower may, if qualified, avail subsidy or interest subvention from the government under different schemes. (Like KVIC, PMEGP, Mudra, CLCSS, CGTMSE, Startup India, Stand-up India, NABARD Schemes, ATISIS, AIF, PM Aawas etc)



B. Cash Credit (CC)


A working capital loan known as a "cash credit" allows for the withdrawal of funds in exchange for the hypothecation of securities and accounts receivable. When a business is experiencing a liquidity shortage, cash credit is an immediate solution. Both secured and unsecured loans are available for this working capital loan (of course this depends on the borrower credibility). The company is only permitted to borrow money from the lender up to the sanctioned limit. To obtain cash credit, businesses must provide collateral or security, which can take the shape of fixed assets, inventory, raw materials, finished goods, equipment, real estate, etc.


Documents required for CC


1. Estimated Projected showing amount of sanctioned limit (Usually it is 25% of estimated turnover of the entity, where 5% belongs to borrower margin).

2. KYC and other documents (as mentioned above)


Note: once the CC is issued the bank requires monthly stock statement duly certified, till the time CC is availed. Also, the CC has to be renewed every year.


Here too the borrower will have to buy stamp papers for hypothecation of the purchased assets and creating deed of the security given as collateral.


Apart from above, in both the loan, Insurance of the assets are compulsory.


We hope the above blog was helpful in enhancing your knowledge on the matter. In case of any queries feel free to get in touch with our team of experts.



Quote of the day:


“Timing, perseverance, and 10 years of trying will eventually make you look like an overnight success. “


~Biz Stone

Regards

Asif Hussain

+ 91 96323-32850

umang@caumang.com


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