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Why choose Project Report For Bank Loan:
A project report allows the bank to assess the feasibility and viability of the proposed project. It provides detailed information about the business concept, market analysis, financial projections, and risk factors, enabling the bank to evaluate the potential risks associated with the loan.
Project report for bank loan is a detailed report that is presented to a bank where a person is applying for bank loan. This is for bank to understand the business, its past and forecasted performance, its stability, recoverability of loan etc.
Therea re various components that should be expected in a project report including profile of business owner, business scope, projected profit & loss statement, projected balance sheet, projected cash flow statement, statement of debt service coverage, important ratios to understand business performance and stability, statement of total funds required and sources of funds.
Let us discuss key components in detail:
In this section highlights and key points of the detailed reports are mentioned for the reader to quickly grasp the gist of the report. Generally, nature of business, type of business structure, purpose of loan, cost of project, funding sources, Debt Service Coverage ratio etc. are mentioned in this section.
In this section you may mention the details of the project, such as:
•Details of the business that you are going to perform
•What are the major revenue sources and material expenses
•Industry trend and growth opportunities
•Stage at which currently project is i.e. how much work is already done and what are the pending activities
•Strength of the owner or organization in the business that puts them ahead of competition
•Risk & threats pertaining to business
You should write this section detailed and simple enough for user of the report to be able to understand the business model quickly.
In this section details of business owner/s are mentioned. Key information included in this section are as follows:
•Owner’s name
•Owner’s work experience including experience in the field of business for which loan is applied for.
•Owner’s educational qualification
In this section you may present company’s sales forecast and how you plan to achieve those revenue numbers and further this may also include the company’s marketing strategy which the organization believes is going to take business to new height and any order book and name of customers from whom you have those significant orders.
You may mention the details of key managerial persons, their position in the organisation, role, experience, qualification etc.
You many also add the break-up of employees in the report, this may be broad classification like number of un-skilled, semi-skilled and skilled employees.
In this section you may mention the details about the existing or proposed facilities such as land, building, machinery etc.
In this statement you will be reporting revenue and expenses, which will result into profit that the company is making and forecast for future years. This is very important information for the bank as they want to see if the Profit made by business is sufficient to cater to the debt of the bank.
Balance sheet is a statement of the organization’s assets (i.e. application of funds) on one side and on the other side Promoter’s fund and outside liabilities (i.e. sources of funds). Bank wants to see how strong the balance sheet of the organization is, this gives them a level of trust that their loan is safe and recoverable.
Cash flow statement is a summary of how the organization is sourcing the fund and what are the various application of funds.
In this section a calculation of break-even point and margin of safety is given, to understand the risk appetite of the organization, in case the things don’t go in right direction.
In this section a calculation is given wherein Debt Service Coverage ratio is calculated for each year for which financial statement is being presented.
Debt Service Coverage Ration = Net Operating Income/Total Debt Service
In Ration Analysis section, you may provide various relevant ratios in order for bank to decide strength and weaknesses of the organization’s financial position. Some common ratios that are generally mentioned are as follows:
•Net Profit Ratio: Net Profit ratio is calculated by diving Net Profit by Sales. This ratio is indication of how much post-tax profit can an organization maintain from the sales amount.
•Current Ratio: This ratio is indicator of financial position of the organization in short term. In this ratio current assets are compared with current liabilities. Ideal ration is 2:1 (current asset to current liabilities) i.e. higher the current assets the better it is for the organization
•Quick Ratio: This ratio indicates the ability of the organization to pay off its current liability by using the assets that are readily convertible in cash.
•Debt Equity Ratio: The Debt Equity ratio is calculated by dividing the total liabilities by the shareholder’s equity. This ratio is very important to understand the financial health of the organization.
•Interest Coverage Ratio: This ratio is calculated by dividing Earning before Interest and taxes by Interest cost of the organisation. Higher interest coverage ratio indicates that the organization can easily meet its interest obligations.
•Fixed Assets Turnover Ratio: This ratio indicates the efficiency of the organization to use the fixed asset to generate the sale. Fixed Assets Turnover Ratio is calculated by dividing Turnover of the organization by Total Fixed Assets. Higher the Fixed Assets Turnover Ratio the better it is for the organization.
Use of authentic data: The project report uses a lot of data. It is recommended that the data is taken from correct source and authenticity and correctness of data is checked before it is used for preparation of project report.
•Be objective in report writing: While writing the project report for a bank loan, make sure you bear the objective in mind and correct facts should be presented in order for the user to get sufficient information from the project report to form his opinion.
•Keep it simple: The report should be prepared in simple language that a layman can also understand. For example, you may be a doctor’s clinic, however not that the users of the report know the medical terminologies. Hence language of the report should be plain and simple without the use of technical jargons.
•Formal and interesting: You should to keep the format formal. User may not read the entire project report. So, it is advisable to use a mix of text and visual elements (like tables, images, graphs etc.).
•Present latest data: It is very important that you present relevant and up to date data in the project report. In today’s world where humongous amount of date is available, it becomes even more important to avoid outdated and irrelevant data is avoided.
•Proof reading: Once the report is prepared, it is very important to read the report thoroughly to catch and correct any errors that might be present in the report drafted.
Financial Clarity: Clearly outlines project costs, revenue projections, and repayment strategies, ensuring transparency for lenders and mitigating risks.
Risk Assessment: Provides comprehensive analysis, identifying potential risks and strategies to mitigate them, instilling confidence in the project's viability.
Legal Compliance: Demonstrates adherence to regulatory requirements, ensuring legal compliance and reducing the likelihood of future disputes or penalties.
Resource Allocation: Helps in efficient resource allocation by detailing project milestones, timelines, and budgetary allocations, optimizing operational efficiency.
Decision Support: Empowers informed decision-making by stakeholders, offering insights into project feasibility, market trends, and potential returns on investment.
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