Steps Involved in Term Loans


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Steps Involved in Term Loans:
Procedure followed by All-India Financial Institutions and State-Level Financial Institutions.

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1.      Idea Generation and Financial Projections: Conceiving the project and preparation of the projections regarding the project.
2.      Submission of Loan Application: Submission of loan application along with project report giving comprehensive information about the project.
3.      Initial Processing (Flash Report): Initial processing of loan application and preparation of “Flash Report”.
4.      Detailed Appraisal: Appraisal of the proposed project report – covers marketing, technical, financial, managerial and economic aspects which is prepared after site inspection.
5.      Issue of (In – Principle) Letter of Sanction: Issue of letter of sanction i.e. financial letter of sanction.
6.      Acceptance of Terms and Conditions: Acceptance of the terms and conditions and compliance of terms of sanction by the borrowing unit at its board meeting and passing of resolution and conveying its acceptance within a stipulated period.
7.      Execution of Loan Agreement: Execution of loan agreement and payment of registration charges. The draft loan agreement sent for execution by authorized persons and to be properly stamped as per the Indian Stamp Act, 1899 and then the financial institution also sign it.
8.      Disbursement of Funds: Disbursement of loans time to time as per the progress of the projects and the financial status of the project.
9.      Creation and Registration of Security: Creation of security through the first mortgage of immovable properties and hypothecation of movable properties. Creation of mortgage within one year from the date of first disbursement failing which 1% additional interest to be paid. This time limit is given for acquiring the assets which might be indigenous purchased or assembled or imported as the case may be.
10.  Monitoring/Post Disbursement Check: Monitoring done at the implementation stage as well as at the operational stage. Also monitoring recovery of dues of interest and principal repayment.

Comparison of Long-term Sources of Financing

Sources of Finance

Cost

Dilution of Control

Risk

Restraint on Managerial Freedom

  1. Term Loans
  2. Equity Capital
  3. Retained Earnings
  4. Preference Capital
  5. Debenture Capital

Low

High

High

High

Low

No

Yes

No

No

No

High

Nil

Nil

Negligible

High

Moderate

No

No

No

Some

Terms associated with Term Loans:
1.      Margin Money
2.      Security – Primary and Collateral, Present and Future
3.      Verification and Validation of Security
4.      Creation of a Charge – First Charge and Second Charge
5.      Creation of a Charge – Mortgage, Hypothecation, Pledge
6.      Interest Rate Determination – Client Health Code, PLR
7.      Tenure of Loan – Repayment period of Principal Loan
8.      Structuring of Loans – Moratorium, Reschedulement
9.      Commitment Charges – Interest (Penal, Rebate, Waiver)
10.  Purpose of Finance
11.  Restrictive Covenants
12.  Currency
13.  Risk Analysis – Sensitivity Analysis

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We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to [email protected]

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