The three questions a bank is actually asking
- What is the money for? — answered by project details, fixed assets, means of finance and application of funds.
- Can the business generate cash? — answered by market potential, capacity, the P&L and the cash flow.
- Will that cash cover the instalments? — answered by the repayment schedule, DSCR and break-even.
Standard format, section by section
| Section | Purpose |
|---|---|
| Cover and unit details | Identifies the borrower and constitution |
| Promoter profile | Establishes capability and KYC |
| Project details | Scheme, activity and purpose of the loan |
| Business profile | What the unit does and for whom |
| Product/service and process | Shows the operation is understood |
| Market potential | Justifies the revenue assumption |
| Means of finance | Sources: own funds, term loan, subsidy |
| Application of funds | Where each rupee goes |
| Fixed assets | Itemised, backed by quotations |
| Working capital | Funds needed to trade |
| Projected P&L | Profitability over the tenure |
| Projected balance sheet | Financial position year by year |
| Cash flow | Liquidity, not just profit |
| Repayment schedule | Instalments against the sanction |
| DSCR | Cushion over debt service |
| Depreciation chart | Ties assets to the P&L and balance sheet |
| Break-even | Margin of safety on volume |
| Assumptions | Makes the basis auditable |
| Conclusion and annexures | Summary and supporting documents |
The schedules that must reconcile
A report is judged on internal consistency more than on optimism. Five links have to hold, and manual spreadsheets tend to break at least one of them after any revision:
- Fixed assets → depreciation chart → P&L charge → balance sheet net block
- Term loan → repayment schedule → interest in the P&L → closing liability in the balance sheet
- P&L profit → reserves in the balance sheet
- Working capital assumptions → current assets and liabilities in the balance sheet
- Cash flow closing balance → cash in the balance sheet
How long a report should be
Twenty pages or so is the working norm for a micro or small unit. Shorter than that and a schedule is usually missing; much longer and the narrative is padding. Length is not what persuades a credit officer — reconciled numbers and stated assumptions are.