Aspire Foundation is a specialist in loan management. These days, there are many business units failed due to bad loan management. Loan management starts with the proper evaluation of owner’s fund and external fund. The mix is very important. Cash flow statement extracted by an expert after considering the risk factors are to be the base for fixing the debt equity mix. Once borrowing limit is fixed, then approach the external source for fund. Financers will also evaluate the prospects of the business; financial strength of the business, credibility of the borrowers, and its team. Here we have to note the intention of lender. Lender is interested in repayment of amount advanced and a higher rate of interest. Lender also much interested to put many conditions for non-utilization of funds for other purpose; and periodical evaluation of the progress of the business along with a health check of the business. Therefore, the bankers will issue sanction letter to the borrower. Sanction letter usually covers fund-based facilities such as CCOL limit, term loan limit, sub limit if any, rate of interest (floating rate or fixed rate) non-fund-based facilities like bank guarantees, UBD, primary securities and collateral securities, details of guarantors etc. Also charges that can be levied namely upfront fee, processing fee, property valuation charge, documentation charges, inspection charges etc. will also be included. Also included penal charges like pre-closure charge, commitment charges, cash handling charges etc. In addition to the above banks will fix-special terms and conditions and general terms and conditions. Further bankers will include mandatory covenants and mandatory negative covenants. All the words in sanction letter are important. The business unit is required to go through the sanction letter closely before accepting the terms and conditions embodied in it. The sanction latter will carry many penal interest and penalty for omission of the borrower. These charges are expenses to the profit and loss account. Whereas it will reduce the net profit. If net profit is less, the health of the unit willalso reduce to that extend. We strongly recommend, business unit should study indetails.
- Actual amount required from outside lenders
- The maximum interest that can be paid
- What are the penal charges, how it can be minimized
- What is the business data that is to be shared and its periodicity. Whether its compliance with is comfortable.
- Is the amount borrowed associated with any services available from the lenders,example free cash deposit limit. Then avail it.
- If servicing of loan seemed difficult, take immediate measures to reduce the liability by alternative means.
All the above are few illustrations. Loan management is a tough task. Knowledge, experience, and skills are to be applied in right mix to retain the business unit and empower the lending system in India.