Negotiating a loan with your Bank
The other day I met a young woman entrepreneur running her beauty saloon business in central Delhi successfully for almost a decade now.She has got good number of clientele and is a brand in herself.she told me that she has been approached by a reputed club in central Delhi to open her beauty saloon branch .For her expansion plans she needed Rs 10 Lac and thus approached her bank.That was a month back.Ever since than,she had been running from pillar to post but no money is yet in her sight.She told me that bankers are nice people to meet and talk but are unable to help much.She felt that all this Govt talk about being entrepreneurial friendly is just a publicity stunt with reality on the ground being altogether opposite.
I patiently heard her story and waited for her to cool down.Once she was back to her normal,I asked her few simple questions,as follows:
- Did you submit the project report along with your application?
- Did you submit a brief about your decade long experience in same field with details of your brand value.
- Did you submit last 3 years of your audited financial statement?
- Did you ask the bank officer to give you receipt of your application from?
Her answer to all the above was big NO.
Don’t be amused by the above story.I often meet young entrepreneurs-men & women ,both who are bubbling with enthusiasm ,have great ideas & innovations but are ill equipped with information while negotiating for their loan with bank.
If you wish to raise funds from a bank,prepare your proposal keeping in mind the banker’s outlook.From a banker’s perspective a bankable project should potentially have the following:
- Project may fall under the priority accorded in the Govt plans , policies and guidelines;
- Promoter should inspire adequate confidence and should have no earlier history of bad debts;
- Technology proposed to be adopted is proven and latest one;
- Products to be manufactured have market potential,existing as well as future;
- Promoters financial contribution is adequate in terms of keeping him committed to the project;
- Profitability estimates are conservative and indicate repayment of the proposed loan within a reasonable period of 5 -7 years;
- Project costs estimates are realistic and not unreasonably exaggerated;
- Raw material is in abundance;
- Promoter has done some kind of pre-market feasibility survey
- Promoter has some kind of experience or else gone through EDP /Skill course,if start-up entrepreneur.
My suggestion to all budding entrepreneurs or existing entrepreneurs seeking bank loan is to carefully study RBI GUIDELINES FOR LENDING TO MSME. Few important points of the same are reproduced as under:
- Disposal of Loan Applications:Time period for disposing of loan applications upto Rs 5 Lacs is 4 weeks and for applications of Loans above Rs 5 lac is 8 weeks.
- Collateral Security Norms: Banks have been mandated by RBI not to accept collateral security in the case of loans upto Rs 10 Lacs.
Banks are flush with funds and majority of the bankers are keen to support entrepreneurship,ball is now in the court of entrepreneurs specially budding entrepreneurs to learn to negotiate with bankers.