BUSINESS OR PROJECT LOAN

A Business or Project Loan is a form of financial assistance provided by banks, Non-Banking Financial Companies (NBFCs), financial institutions, or private lenders to fund the working capital and capital expenditure requirements of a business or specific project. Such loans are generally availed by entrepreneurs, corporations, and partnerships for starting a new project, expanding an existing one, or meeting business growth requirements. Unlike project financing (where repayment depends solely on the project’s cash flows), a business or project loan may also consider the overall creditworthiness, net worth, and repayment capacity of the borrower.

Key Features of Business or Project Loans

Business Loans: Typically used for working capital requirements, purchase of machinery, expansion of operations, or meeting day-to-day expenses.

Project Loans: Primarily sanctioned for financing new projects (greenfield projects) or expansion of existing projects (brownfield projects), where the repayment structure is linked to both the business’s financials and project viability.

Business loans are generally sanctioned for short-term to medium-term periods (1–5 years), whereas project loans may extend to medium- or long-term (5–15 years or more), depending on the project size and nature.

They can be structured as term loans, overdraft facilities, working capital loans, or cash credit limits.

Lenders assess multiple factors before sanctioning such loans, including:

  • Financial history and CIBIL/credit score of the borrower or promoters.
  • Business vintage, profitability, and repayment track record.
  • Debt-Equity Ratio (DER) and leverage position of the business.
  • Promoter’s experience and sector expertise.

For large projects, Detailed Project Reports (DPRs) including cost-benefit analysis and cash flow projections are mandatory.

  • Business or project loans may be secured or unsecured, depending on the borrower’s profile.
  • Secured loans typically require mortgage of property, hypothecation of assets, pledge of shares, or personal/corporate guarantees.
  • For unsecured business loans, lenders may charge a higher interest rate due to higher risk exposure.
  • Rates of interest may be fixed or floating, based on RBI guidelines and market-linked benchmarks like Repo Rate / MCLR (Marginal Cost of Funds-based Lending Rate).
  • Additional charges such as processing fees, documentation charges, prepayment penalties, and legal due diligence costs may apply.
  • Business and project loans in India are regulated by the Reserve Bank of India (RBI) under the Banking Regulation Act, 1949.
  • NBFC loans are governed by the RBI Master Directions on NBFCs.
  • In case of default, lenders may invoke remedies under the SARFAESI Act, 2002, or initiate proceedings before Debt Recovery Tribunals (DRTs).
  • For companies, compliance with the Companies Act, 2013 and disclosure under Schedule III of financial statements is mandatory.

Our Firm’s Advisory in Business & Project Loans

We assist clients in structuring, availing, and managing business and project loans by providing end-to-end advisory services, including:

Evaluating borrower’s profile, industry outlook, and compliance requirements.

Preparing necessary loan applications, DPRs, CMA data, and legal documentation.

Coordinating with multiple lenders, NBFCs, and private equity funds for optimal financing.

Ensuring compliance with RBI, FEMA, SEBI, and sector-specific regulations.

Advisory for restructuring loan obligations, OTS (One Time Settlement), and refinancing at favorable terms.