The period between the release of the loan and the first principal installment repayment is known as moratorium. The moratorium is a holiday period given by the bank to the borrower units to start repayment of installment. This is necessary because when a new unit is established or new machinery is installed it always takes sometime before the units earn all necessary overheads or expenses and thereafter start earning profits. Therefore, the bank studies the profitability statement prepared by the unit and arrives at a conclusion as to the length of moratory period. Some of the banks fail to realize this important aspect of giving moratory period to the units, not only when the units are first started but also everytime new machinery is installed at the factory without which the units will start defaulting in repayment of the installments which will aggravate with the passage of time and it may cost sickness to the units. E.g. First two years no installment but interest to be paid during gestation period.

Disbursement of the Loan:

Term loan is never given in lump sum; it is always given in installments to prevent the misuse by the borrowers. If in some case the borrower pays to the supplier then the bank reimbursement is done. But mostly the bank calls for the margin money from the borrower and both the margin money and loan amount is paid to the supplier (direct investment) by the bank. Disbursement of the loan amount is done in stages. No lump sum payment is done. Mostly the bank pays to the supplier directly. The facility of reimbursement of payment is done by the borrower to the supplier is offered to few borrowers.

After sanction of the limit(s) to the units, the bank recovers margin money from the applicant units and alongwith the loan amount is generally paid directly to the suppliers. There may be some instances when the firm is required to make urgent payment to the suppliers may be due to the delay in sanction of the limits or in some cases at the request of the suppliers. In such cases, the firm should mention this fact in the application for loans itself and request the bank to make disbursement of limit sanctioned on reimbursement basis to them. In such cases, the bank credits the amount to the account of applicant firm.


The bank should ensure that the assets or the machinery against which it has lent money is adequately insured, so that unforeseen losses or calamities are averted and all risks are insured. In case of emergency/loss, the bank can claim under the insurance policy from the insurance company. The insurance policy acceptable to the bank is comprehensive insurance policy covering all risk such as fire, theft, earthquakes, civil commotion, etc. and the policy should be in the name of the bank account borrower. It is in the interest of the bank to get the insurance policy renewed every year.

Client Health Code: Past track or what is wrong with the borrowing company. Just like a doctor tells to his patient what is wrong with him.

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