Project Report for Loan Proposal

Implementation of any project requires money to spend on all elements of the project. Money is required for commencement of project and completion of project and also after completing the project. There are two types of funds required for any successful implementation of project for long term and short-term requirements. Long-term requirements are met by issuing equity or by raising term loans. Short-term requirements are met by raising working capital loans.

When we raise money from banks and financial institutions need a detailed project report to convince them to accept the proposal and fund for the project. The project is funded by financial institutions to the extent of 70 percent to 80 percent leaving balance to the promoters of the project. Herein bellow we give some insights on preparation project report to be submitted to financial institutions.

The main contents of comprehensive project reports to be submitted to financial institutions are detailed bellow.

Details about promoters. The promoters of project are the key persons who initiated the project to be implemented and operated on. That is the reason the personal details, their achievements in business, their credit worthiness and other aspects to be narrated at the beginning the project report. The financial institutions are key to know these details with established documents. If the promoter’s records are impressed then moving the project proposal to the next level will be easier. We need to collect the KYC documents of the promoters, the details of other projects implemented by these promoters, the status of the loans availed by the promoters on other projects and business need to be collected so as to present fair representation of the promoters on the project. The facts collected should be presented in hundred percent accuracy and there cannot be any window dressing. The actual fact about the promoters need to be presented with relevant documents. In case any bad or negative remarks about any promoter then the proper justification for the negative remarks to be given so as to prove that these negative remarks will not affect the present project proposal. The financial institutions would ask for the explanation on these remarks. In such case proper explanations need to be communicated to financial institutions which should be in line with facts narrated in project report.

Industry Analysis. The industry analysis is important before giving insights of the project. The business of the project should be in good industrial segment. For example food industry has ever green life as the food is required for the society at any point of time. The project report needs to report the industry demand for the product and services. This will enable the financial institutions to assess the demand and growth prospects of the industry and project. In this case we need to collect the industry information of demand and growth prospects. There are plenty of information about the industry available on internet. We need to search relevant details and documents to present in the report.

Economic Analysis. The demand and supply position of a particular type of product under consideration, competitors share of the market along with their marketing strategies, export potential of the product, consumer preferences are matters requiring attention in such type of analysis. The demand and supply of the product or services under consideration is an important bearing on the financial appraisal from the point of financial institutions. The financial institutions will analysis the demand prospects so as to assess the repayment capacity of the loan sanctioned on the project.

Cost of Project. The details of the cost of the project with all elements of the cost need to be submitted with proper documents. The cost needs to be estimated at hundred percent accuracy so that funding is made to all the elements of the cost of the project. Cost of the land, site development, buildings, plant and machinery, utilities of power, fuel, water, vehicles, technical know-how together with working capital margins, preliminary and preoperative expenses, provision for contingencies determine the total cost of the project. The quotation from the supplier, land purchase agreement, an estimate made by the qualified engineer are important documents need to be submitted along with the project report.  The cost of the project is to be estimated with cost of escalations due to inflationary conditions and delay in completion of project are also need to be taken into account.

Raw Materials. The availability of raw materials within and outside the home country, reliability of the supplier of the raw materials, cost of the raw materials with cost of escalations need to be detailed in the report. The success of the project also depends on the availability of the raw materials at the desired cost and quality. Further timely supply of raw materials is also important. The report should establish that the raw materials are supplied on time in accordance with the production schedule and material requirements.

Manpower. The availability of skilled and non-skilled manpower required for the project is also important consideration in project appraisal. The technical, non-technical and productions labourers are important to operationalise the project. So, project report also specifies how the manpower for the project are managed at desirable cost. If there is requirement of high-end technical person to implement and operationalise the project the agreement with such person is required to be referred and documented with the report.

Technical Analysis. This is purely technological aspects of the project. The engineers involved in the project implementation and operation are to be taken into consideration in preparing the report. Technical know-how, plant layout, production process, installed and operating capacity of the plant and machinery form part of the core of technical analysis. The complete technical analysis starting from the stand point of initiation of the project to commercial operation are important to consider at this analysis. The financial institutions are to convinced about the technological aspects of the project with complete analysis. This is will enable them to assess technological feasibility of the project.

Financial Analysis. The financial analysis mainly with estimates on production costs, revenue, tax liabilities, profitability and sensibility of profits to different elements of costs and revenue, financial position and cash flows, working capital requirements, return on investments, promoters contributions together with debt and equity financing are items which need be looked into for financial viability. The financial analysis is also supplemented by financial ratios of percentage of return on investments, current ratio, deb-equity ratio, operating margin ratios, net profit ratios, debt service coverage ratio. These ratios are to be positive so as to assess the financial viability. The estimates are to be made for period of five to ten years. The financial institutions certainly assess the financial viability of the project based on the facts and figures of financial analysis. The estimates should be based on the reality and the estimates which are unreasonable are not funded by the financial institutions.

Repayment Schedule. The repayment schedule is to be prepared based on the estimated cash flows prepared in financial analysis. If the project required moratorium period in case the project is not able to create surplus cash flows from the initial period are also to be reported. The financial institution is to be requested for such period so that the repayment will not start at the stage of the completion of the project.

Legal Considerations. The legal consideration which are affecting the project are also important bearing in the project appraisal. For example, if production and marketing of particular product is restricted at the location of the project. There is legal consideration which may affect the project implementation and operation which will be considered in the report. The report from legal experts is to be documented if required for this purpose. The legal consideration on labour laws, Company Laws, Factories Act and so on are important to refer here. Further the laws of Foreign Exchange Management Act, Competition Act, Reserve Bank Act and guidelines are also important.

Tax Considerations. The tax consideration needs to be taken into account in preparing the project report. The report on how the tax compliance are made also referred in the report. Further claiming of various benefits and exemptions under direct and indirect tax laws are also taken into account in preparing the project report. The report from Chartered Accountant if required for this purpose may be made available.

Government Policy. There is government industrial policy which are affecting the project are to be considered in the report. Further various incentives and benefits under the industrial policy need to be taken into in preparation of the report.  If the project is on the priority sector then this will be an added advantage to the financial institution to fund for the project.

SWOT Analysis. Stands for strengths, weakness, opportunities and threats of the project under consideration. The report needs to explain these four aspects of the projects in an unbiased manner. The liquidity constraints in the capital market, limit of resources available with promoters, business-financial risks, micro-macro-economic considerations subject to government restrictions, role of banks-financial institutions in project assistance, cost of equity and debt capital in the financial plan for the project are important factors which require careful examination while carrying out SWOT analysis. This is important part of report which will explain to the financial institutions why the project should be funded.

Social Cost Benefit Analysis. The project should explain about the social cost incurred and benefit extended from the project. This will enable the financial institution to assess social factors and benefits of the project. The public sector banks are need to consider benefit to society at large from project funded through it. There are ecological matters, value additions, technology absorptions, level of import substitution form the basis of such analysis.

Project Implementation Schedule. The date of commencement, duration of the project, trial runs, cushion for cost and time over runs and date of completion of the project through network analysis have all to be properly adhered to in order to make the project feasible. If there is delay based on the certain conditions are also considered in the report.

Hence the project report needs to be prepared with all relevant consideration on market feasibility, technical feasibility and financial feasibility. The project report should explain and document on all of these feasibilities. The financial institutions will analysis on all these feasibilities and fund for the project if the project is viable to be funded. The proper explanations need to be given on all the contents of the project report so as to convince them to fund for the project.