Term loan or working capital — the report differs
A term loan funds fixed assets and is repaid over a fixed tenure, so the bank focuses on the repayment schedule and DSCR. A working capital limit funds the operating cycle and is assessed on holding levels — inventory, receivables and creditors. Applications for both need the report to carry each analysis properly rather than treating them as one number.
Working capital assessment methods
- Turnover method (Nayak Committee) — commonly applied to limits up to ₹5 crore; the limit is broadly 20% of projected annual turnover with a 5% margin from the borrower.
- MPBF method — used at higher limits, working from current assets and current liabilities to a maximum permissible bank finance figure.
- CMA data is normally required once the limit crosses the bank's threshold for the turnover method.
What the report must contain
- Constitution, promoter profile and management background
- Existing operations and financials, where the unit is already trading
- Product or service line and process description
- Market and competition analysis
- Fixed assets and means of finance
- Working capital computation with holding-period assumptions
- Projected P&L, balance sheet and cash flow
- Repayment schedule and DSCR
- Ratio analysis — current ratio, debt-equity, TOL/TNW
- Break-even and sensitivity
- Assumptions and annexures
Ratios the credit officer will check first
These are conventional benchmarks rather than statutory limits — individual banks and sectors vary. What matters is that the report computes them explicitly rather than leaving the officer to derive them.
| Ratio | What it tests | Commonly expected |
|---|---|---|
| DSCR | Ability to service term debt | 1.5 – 2.0 average |
| Current ratio | Short-term liquidity | 1.33 and above |
| Debt–equity | Leverage on the balance sheet | 2:1 or better |
| TOL/TNW | Total outside liabilities to net worth | Under 3:1 typically |
| Interest coverage | Cushion over interest cost | Comfortably above 2 |