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With the right kind of planning and information, your journey toward a loan can be a bump-free one. Some pointers to ease you through the process.
1. Keep yourself updated
Earlier, banks were shackled by rigid RBI guidelines, so there was not much flexibility in credit dispensation. Now, with liberalization and globalization, RBI has relaxed its hold quite a bit. Banks can frame their credit policies/schemes within the overall national objective of growth, stability and availability of a certain percentage of lendable resources to priority sectors.
Shop around to see what different schemes are out there. Some banks have floated Branded Credit schemes to popularize their loan products. Most notable are the Retail Personal Banking Products under housing, vehicle, personal consumption loans where special schemes are introduced almost regularly in an eye catching manner. Banks also have special schemes for small borrowers. Find out what these are, and choose the one that works best for you.
2. Be finance literate
You need not be a financial pundit while presenting your project report, but you should at least know the basics of the venture you intend to start. Take the help of a financial advisor/Chartered Accountant in preparing a project report. These days, bankers are themselves ready to offer help in spreading financial literacy amongst their clientele — especially new age entrepreneurs.
Still, banks are always more comfortable dealing with an entrepreneur who is well informed about his project.
3. Maintain transparency
Entrepreneurs almost always hide their financial weaknesses from their bankers. This, though understandable, should be avoided, just as we should be transparent with our physicians when we seek treatment of our maladies. Banks being the financial physicians,entrepreneurs should try and maintain financial transparency with them.
Also, most entrepreneurs overstate their level of inventory holding, to get higher levels of drawing power in their cash credit accounts. This should be avoided as far as practicable, so that you can foster an atmosphere of trust and faith.
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The Government of India has introduced a Credit Guarantee Scheme for Micro, Small and Medium Enterprises through the Credit Guarantee Fund Trust for MSMEs. Under this, banks would be provided a guarantee cover for loans to these sectors up to `100 lakh if they extend financial assistance to entrepreneurs without any collateral security or third party guarantee. This should give confidence to the banks to lend to entrepreneurs who are unable to arrange for collateral securities and third party guarantors. A small guarantee fee (1 to 1.50 per cent) and an annual service fee (0.50 to 0.75 per cent) of the loan amount are levied in these cases, in addition to the interest charged by the banks. Often, banks absorb up to 50 per cent of these fees to encourage entrepreneurs to get them covered under the scheme. This scheme is of great help to small entrepreneurs. |
4. Consider your relationship with the bank
The longer your relationship with the bank, the higher the trust levels. Besides, your regular bank already has your personal information, so the paperwork is that much easier. Experts suggest you should build a long-term relationship with a bank much before you have a dire need for a loan. Having said that, at the end of the day, it is the project and its technical feasibility, financial viability and bankability that will decide whether you get a loan.
5. Assess Yourself
Before approaching a bank, get a report on your financial standing. This is especially important if one is included in the defaulters’ list circulated by R.B.I., CIBIL, ECGC, etc. Of course the entrepreneur would himself know if he has defaulted to any Bank/F.I. But in some stray cases like Credit Cards, etc. one’s name may figure in the defaulters’ list without your knowedge. It is therefore advisable to come clean of such issues before putting your papers before a bank. Nowadays CIBIL also provides credit history to consumers on payment of a nominal fees.
It is a good idea to pay for this.
6. Get rated
Banks have started insisting on external rating from CRISIL, ICRA, and SMERA, etc. for loan proposals beyond a cut off mark of Rs 500 lakh for entrepreneurs. These impartial rating agencies provide details of the financial standing, technical strength and various other activities of the prospective entrepreneurs. This is a powerful tool for bankers, allowing them to make informed decisions on sanctioning loans.
Banks do get certain relaxation in maintenance of their Capital Adequacy Ratio in respect of loan accounts where external Rating Agencies have assigned higher ratings to their borrowers. As such, they do look out for such ratings when assessing a venture. If your credit rating by a reputed agency is high, you can hope to get competitive interest rates from the bank.
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