DIFFERENT LOAN CRITERIAS OF BANKS.

Defination of loan- Definition:

Money lent for a specified period of time at a specific interest rate. Collateral is often necessary to receive the loan. This clearly clarifies that to get a loan, you should deposit or handover or mortgage an collateral security , to get an Loan. So, what is Collateral security?? Collateral is a form of security to the lender in case the borrower fails to pay back the loan. For example, if you get a mortgage, your collateral would be your house. In margin trading, the securities in your account act as collateral in the case of a margin call. More importantly, prime security is deposited , towards the banl. Prime security is the business, or thing itself which is mrtgages towards bank as a security.

HOW THE LOAN IS APPLIED?

Your lender or investor will review your financial requirements among three types of capital acquisition: Working Capital Used to meet fluctuating needs that will be repaid during the company's next full operating cycle, generally one year. Short term business loans are sometimes called hard money business loans. They are used to aid businesses with cash-flow problems. Growth Capital Used to meet needs that will be repaid with profits over a several-year period (usually not more than seven years). If seeking growth capital, you will be expected to show how the money will be used to increase profits sufficiently to repay the loan in the agreed-upon time frame. Equity Capital Used to meet permanent needs. Equity capital must be raised from investors who will take a risk in return for some combination of dividend returns, capital gains, or a specific share of the business. AFTER YOU SUBMIT ALL THE FOLLOWING DOCUMENTS, THE APPLICATION IS FORWARDED ..

HOW THE LOAN IS PROCESSED ?

Approval of your loan request depends on how well you present yourself, your business, and your financial needs to a lender. Remember, lenders want to make loans, but they must make loans they know will be repaid. A well-written business plan is a good way to give the lender an overall picture of your business. Accompanying that should be a loan proposal containing:

1. Credit history Obtain a credit report on yourself and your business before you apply so you know what the lender will see. Then if there are any inaccuracies or problems, you can address them before you submit your loan application. If you can, find out which credit reporting company the lender uses and request a report from that company. Most credit reporting agencies have methods for the consumer to obtain a copy of their credit history. Some of the most common credit reporting agencies are: Equifax Experian Trans Union

If there are problems with your credit, a good source for help is the National Center for Financial Education. They provide worksheets and advice on debt management.

2. Cash flow history and projections for the business Cash flow history is used to project your business's cash inflows and outflows over a period of time. Lenders use it to predict the ability of your business to create the cash necessary to pay back the loan. It can also be useful to you to project your business's cash inflows and outflows and predict your business's cash flow gaps - periods when cash outflows exceed cash inflows. A sample Cash Flow Budget Worksheet template is available online from the Business Owner's Toolkit. Be certain to include in your cash flow projections the cost of the loan. The amounts you would be paying can be calculated from the requested amount to be borrowed, the length you anticipate needing the loan and the estimated interest rate.

3. Information about any collateral that might available In a startup business, a commonly used source of collateral is the equity value in real estate, such as your home. Other possible collateral sources are inventory, accounts receivable, equipment and securities.

4. Information about the your character Characteristics assessed in valuing character are such intangibles prior business experience, an existing or past relationship with the lender and references from professionals (accountants, lawyers, business advisors) who have reviewed your proposals. Additionally, the care and effort you have put into the business planning process suggests your level of commitment to the business.

5. Business and personal financial statements and income tax returns There are a wide variety of ratios a lending agency might look at in assessing your financial statements. Some of the most common are: Liquidity: The amount of cash and working capital a company has. Leverage :

The amount of debt on a company's balance sheet . Inventory : An accurate count of your inventory to determine inventory turnover, particularly if you run a wholesale or retail operation. Turnover (or Activity The turnover of receivables, inventory and sales. Receivables Turnover: The amount of accounts receivable in relation to sales. Gross Profit Margin : Net sales (minus returned goods, discounts, and price reductions) minus cost of goods sold. Return on Sales: The percentage of profits remaining after direct expenses, overhead, unusual items and taxes. The most com monly reported mistake in obtaining a loan is that the person does not know how much money they need. Be prepared to provide not only an exact amount, but how you arrived at that amount, and what you plan on using it for. All of this information is important for you to know and have available whether or not you seek a loan. Loans are indeed possible and the process of applying is in all likelihood also good for your deeper understanding of the financial outlook for your business.

TYPES OF INTEREST RATES-

When availing a home loan (mortgage), among the many decisions to make, the hardest is probably deciding the type of interest rate that you should choose. First let us learn about the different types of interest rates offered by the financial institutions: Fixed rate of interest: In this case the rate of interest payable remains fixed throughout the loan period. But this kind of interest rates are comparatively bit higher (usually 1% 2.5% higher) when compared to floating interest rate and only a few lenders offer this option. Resettable fixed rates: Many lenders offer this variation of fixed rate of interest. Here the rate of interest is fixed for the period of 3 to 5 years; and after that period it gets reset once again for the next period.
Floating interest rates: It is also known as adjustable, flexible or variable rate of interest. Here the rate of interest fluctuates according to the market-lending rate. So the borrower should be ready to pay more EMI than the budgeted one if the lending rate goes up. As the borrower bears the risk of fluctuation, the rate of interest offered here is slightly cheaper as compared to the fixed interest rate. Therefore, if the interest rates are reduced (or even if it remains constant over the loan tenure) the

borrower will gain. But if the rate of interest increases, then EMI will also increase, and thus the loan becomes expensive.

Partly fixed and Partly floating rate of interest: These loans are also referred to as fixed-cumfloating, fixed first, split rate and dual rate loans. Some lenders give the option to split the loan amount and charge fixed interest rate on one part and floating interest rate on the other. The borrower is given the option to decide the ratio (say half or quarter or three quarter) of the loan amount under fixed and floating interest rates. Some lenders even give the option to split the tenure of the loan, in which case the first two to three years they charge a fixed rate and then start charging the floating rate on interest. Some banks offer loans with significantly low fixed rates (also called teaser rates) for a short duration to lure in the borrowers. After this short duration, these loans convert into retail prime lending rate home loans. Switching between the above interest rate options is also available with some lenders but that comes with an additional charge on the outstanding principal amount which can range between 0.5% 2%.

So the question arises, whats the advantage or disadvantage of these types to us ?

Advantages and Disadvantages of Fixed rate of interest loans: Fixed rate of interest is a better option if the current interest rates are below the average of historical interest rates in India (ex: average of loan rates over a 20-year period). Further, If you are not ready to face the risk of uncertainties and wants to play it safe, then it is better to opt for fixed rate of interest. Counting on salary increases that havent happened yet in order to afford what will probably be your largest monthly expense is risky. Fixed rates also mean that the borrower doesnt benefit from falling rates. But, fixed interest rate is a less prevalent in India; even the so called fixed rate of interest comes with a resettable clause. Banks generally offer fixed rate home loans only when the interest rates are very high and such offers dry up when the interest rates are low compared to historical interest rates. Even if they exist, the difference between fixed and floating rate loans is significantly high. Banks generally charge 2-5% prepayment penalty on fixed rate loans because they carry the risk of interest rate changes

Advantages and Disadvantages of Resettable Fixed rate of interest loans: Resettable fixed rate of interest gives more control and predictability to EMI amount when compared to floating interest rates. For example, if you plan to sell the home in the short term and the current rates are low, then this type of interest rate is advantageous to the borrower.

Advantages and Disadvantages of Floating rate of interest loans: To the borrower, it is better to opt for transparent floating rate of interest on home loan. Because, here the interest rate will increase / decrease along with the increase/decrease in the general interest rate. If the interest rates decline and the borrower continues to pay the same EMI amount, the loan tenure will get reduced. Also, floating rates tend to be lower when compared to fixed rates.On the other hand, if the interest rates increase, it can become a struggle to pay increasing month payments. Studies conducted in other countries have shown that over long periods of time the odds favour the floating rate of interest. A transparent floating rate of interest means that the bank passes the burden (benefits) of increase (decrease) in general interest rate which will result in either the change of EMI or the change of loan tenure. This situation is illustrated with an example below: Suppose you take a home loan of 10,00,000 for 20 years with rate of interest of 9.5%, then your EMI comes to 9,321.

Let us say the rate of interest increases to 11.5% after 2 years. At this time, your outstanding principal amount would be 9,63,034 that is yet to be cleared in the remaining 18 years. You would have already paid 2,21,233 as interest by then. In such situations, the bank will give you the option of A) adjusting the EMI upwards OR B) change the loan tenure so that EMI remains the same.

In option A, your newly adjusted EMI will be 10,577. In option B, the remaining adjusted loan tenure will be a shocking 38 years and 3 months (excluding the 2 years already gone by). Dont believe it? Use the EMI Calculator to check it out yourself. When loan tenure exceeds 20 years (with some banks 25 years), the bank may either ask you to go with option A or advise you to make a prepayment on the loan. This is because after certain point banks cannot increase the loan tenure to cope with the rise of interest rates.

One other advantage of floating rate loans is that banks generally wave off the prepayment penalty because the customer already carries the risk of interest rate changes. Advantages and Disadvantages of Fixed-cum-floating rate of interest loans: Loans with partly fixed interest rate on one part and floating interest rate on the other offer interest-rate diversification. Diversification benefits borrowers just like it benefits investors who buy portfolios of stocks. However, such home loans are beneficial only when the interest rates are at a historical low (i.e., expected to rise in future) and not when they are peaking (i.e., expected to decline soon). Here are a few questions you should ask yourself when deciding which type of interest rate you should choose: 1. Are the current interest rates significantly low or high when compared to average of historical rates? 2. Do you prefer predictable EMI payments? 3. How long do you plan to live in the house? If you plan to sell, after how many years would you sell? 4. Will your earnings increase or decrease or remain the same in the next few years? If you have a variable rate interest and the rate goes from 7% to 10% can you still afford it? 5. Do you prefer a short or long term loan? 6. What is the prepayment penalty if you want to switch to another lender who offers the type of interest rate that suits you later on? Choosing between fixed vs. variable rate of interest is not about speculating whether interest rates will go up or down, its about risk management. Choose wisely and live frugally.

AFTER UNDERSTANDING THE ADVANTAGES AND DISADVANTAGES OF THESE INTEREST MODES, LETS SEE, AT WHAT DIFFERENCES, CRITERIAS, MORTGAGE ISSUES, RETURN MODES etc.. Now we will observe the different criteria of banks for issuing of loan .

According to the information collected , the following bank offer loans as

DIFFRENCES IN BANK LOAN CRITERIA.

We surveyed in different banks for business loan , and the differences are as follows

HDFC Bank Business LoanSmall & Medium Enterprises At HDFC Bank we understand how much of hard work goes into establishing a successful SME. We also understand that your business is anything but "small" and as demanding as ever. And as your business expands and enters new territories and markets, you need to keep pace with the growing requests that come in, which may lead to purchasing new, or updating existing plant and equipment, or employing new staff to cope with the demand. Thats why we at HDFC Bank have assembled products, services, resources and expert advice to help ensure that your business excels. Our solutions are designed to meet your varying needs. The following links will help you identify your individual needs. Funded Services Funded Services from HDFC Bank are meant to directly bolster the day-to-day working of a small and a medium business enterprise. From working capital finance to credit substitutes; from export credit to construction equipment loan - we cater to virtually everybusiness requirement of an SME. Click on the services below that best define your needs.

Working Capital Finance Commercial Vehicle finance Construction Equipment Loan Short Term Finance Bill Discounting Credit Substitutes Export Credit Structured Cash Flow Financing Real Estate Initiatives Non-Funded Services Under Non-Funded services HDFC Bank offers solutions that act as a catalyst to propel your business. Imagine a situation where you have a letter of credit and need finance against the same

or you have a tender and you need to equip yourself with a guarantee in order to go ahead. This is exactly where we can help you so that you don't face any roadblocks when it comes to your business. The following are the services that will precisely tell you what we can do.

Business Accounts HDFC Bank Trade Letters of Credit Guarantees Collection of Documents Cash Management Services Forex Desk Money Market Desk Derivatives Desk Services to Employee Trusts Services to Cash Surplus Corporates Tax Collection Bankers to Rights/Public Issue Specialised Services HDFC Bank is one of the most trusted entities when it comes to specialised services like selling of precious metals to customers. Under specialised services you can also avail customised control of your value chain through our internet banking platform.

Precious Metals Channel Financing Value Added Services There is a plethora of services that we offer under value added services. There's corporate salary account which ensures smooth payment methods to your staff. You can avail an assortment of credit cards and debit cards from our merchant services. The following are the highlights of this service:

Real Time Gross Settlement Corporate Salary Accounts Reimbursement Account Merchant Services Custody Services HDFC Bank Gold Business Credit Card

Internet Banking Internet banking is a revolutionary service under the banking sector and HDFC Bank is a forerunner in providing you with this service. We provide state-of-the-art payment gateway services to industries and companies in order to ease transaction processing. This in turn enhances the credibility of your business and makes banking extremely cost-efficient.

Icici bankAs a growing entrepreneur, we know how valuable time is for you. You are constantly thinking of growth and managing your business. At ICICI Bank, we think of the same when it comes to your business. Our Smart Business Loan is your easy access to money. Get up to Rs. 25 lacs as an Overdraft or a Business Installment Loan with no collaterals and faster turnaround time. Just Flash your existing Repayment Track Record and apply for an Overdraft Facility or Business Loan.

Overdraft:
Easy Access Money

Working capital as Overdraft facility Validity of 12 months Interest to be levied on the amount utilized* Enjoy the flexibility to pay a minimum amount every month* Interest Rate (IBAR + Cash Credit Premia - 2.7.5% )* Processing Fees of 2.5%

Business Installment Loan:

Seize growth opportunities

Credit facility in the form of Term Loan / Business Installment Loan Payment in the form of equated monthly installments Repayment tenure of 12-36 months Plan and control your cash flows-Interest Rate (IBAR + Term Premia (0) + 3.5%)* Processing Fees of 2.5% Advantages:

Faster loan sanctions with minimum documentation* One stop solution with a bouquet of products Attractive rate of interest* Query resolution at local branches Other benefits:

Facility to deposit cash in the current account** Online repayment facility** Availability of local cheques Flexibility to open accounts at local branches Eligibility:

Income Tax Payee Good business track record Comfortable business vintage Documents required:

Latest sales tax/VAT/service tax return Latest income tax return Bank statement Certificate of registration Proof of ownership: Title Deed, Municipal Tax/Municipal Charge Bill / Receipt, Property Tax Paid Bill

Residence Proof: Telephone Bill/Electricity Bill Driving License/Valid Passport Identity proof: Driving License, Passport, Pan card ---

Citi bankCitiBusiness Get unsecured and secured loans from Rs. 10 lakhs to Rs. 15 crores to take your business to greater heights. CitiBusiness gives you an array of business lending products like Fast Track Loans, Secured Term Loans and Overdraft Facility. Be assured of all your financial requirements to keep your business ahead and growing. Get access to a whole range of unique benefits, services, business intelligence, deals and discounts that are normally enjoyed by large corporations. Top 3 reasons to get a CitiBusiness Loan 1. Avail Quick Loans up to Rs. 25 lakhs without any collateral security. 2. Overdraft facility up to 3.5 crore. 3. Minimal Documentation. Our basket of Loans Secured Term Loans

Quick Loans

Loans upto 15 crore Tenors upto 10 years Maximum LTV (Loan to Value) of 80% Ideal for Business Expansion

Loans upto Rs. 25 lakhs No Collateral Security Minimal Documentation Ideal for short term fund requirements

Overdrafts

Dropline Overdraft

Maximum Line Amount of 3.5 crore Unsecured Overdrafts upto 2.2 crore Interest charged only on the amount utilised Ideal for Working Capital Purpose

Unique combination of Term Loan and Overdraft Maximum Line of 15 crore Interest charged only on the amount utilised Ideal for Working Capital Financing

Non Fund Based Lines

Maximum Line of 3.5 crore Suitable for Letter of Credit, Bank Guarantee and Forward Contracts

Eligibility

Any Business with a turnover of above Rs. 44 lakhs Businesses organised as sole proprietorship, partnership or Private Limited Company

How to Apply You can Apply online by choosing the product that best suits your need and our representative will contact you. Or visit our branch in your city and meet our representative for a loan approval

STATE BANK OF INDIATraders Easy Loan Scheme This scheme is launched by SBI to provide hassle free loan to Traders. Any business man/ entrepreneur/ Professional and self employed person can avail this loan. Loan under the scheme can be availed to meet normal business requirements and is sanctioned against equitable mortgage of property. Any residential or commercial property in the name of unit/ proprietor/partner OR their close relatives is acceptable. Agriculture property or property outside urban limits is not accepted. The advance can be availed by way of Loan or Cash Credit limit. It can also be availed for Non Fund Based requirements (for issuance of Bank guarantees or LCs). Cash Credit limit or non fund based limit is renewable every 12 mths.Loan can be repaid in monthly or quarterly, even half yearly installments - as may be suitable to the borrower in a period upto 5 years. Minimum and maximum amount of loan is Rs 25,000/- and Rs 5.00 Crore. Margin is 35%. i.e. loan can be upto 65% of the realizable value of the property or the business requirementwhichever is less. Business requirement is assessed on the basis of projected business turnover. Interest at floating rate is charged at monthly intervals on daily reducing balance. No Third party guarantee is required to avail the loan. Retail Trade The Bank finances Small Business activities that can be started with relatively lower investment and with no special skills on the part of the entrepreneurs. In this category, the SBI extends loans to retail traders who act as a vital link between the manufacturers of goods or commodities and the consumer. The bank offers working capital products as well as loans for purchase, renovation and repairing of equipment. Retail trade finance is normally capped at Rs 5 lakh. Any individual or a firm (partnership or proprietorship) engaged primarily in buying and selling mercantile goods is eligible for this mode of finance. For requirements up to Rs 25,000, no margins are involved. For needs ranging from Rs 25,000 to Rs 50,000, the margin is set at 20 per cent. In other words, the quantum of the loan will be restricted to 80 per cent of the unit's expenditure. For fund needs above Rs 50,000, a 25 per cent margin may be applied. Security Primary Loan upto Rs.25000/Above Rs.25,000/Flexi Loan Eligibility Charge over the assets purchased out of Banks finance Charge over the assets purchased out of Banks finance Collateral Nil Charge Over the immovable/movable assets/third party guarantee as per RBI guidelines

Should have earned a pre-tax profits in each of the immediately preceding 3 years The trader should be well established and should have a proven record of profitability Purpose The loan can be considered for any general purposes like

Holding of stocks/book debts Acquisition of land and building Building construction/up gradation and renovation of offices, showrooms, godowns etc Substitution of high cost debt Shoring of networking capital Computerization expenditure Nature of facility Term loan Margin 20% Tenure of Loan 3 to 5 years. Repayment to be made in monthly, quarterly installments as per the normal cash generation cycle. Primary security Hypothecation charge over the Current Assets and Fixed assets. Where finance is extended for acquisition of land and building, building construction, up gradation and renovation of offices, showrooms and go downs etc. equitable mortgage of relative fixed assets will be considered as the primary security. Collateral security Tangible security such as immovable property, bank deposits, NSC, RBI relief bonds etc to the extent of a minimum of 100% of the limits sanctioned personal guarantees of proprietor/partners/promoters to be invariably obtained. Loan amount Min Rs. 1 lakh Max Rs. 10 lakh

MAULANA AZAD COLLGE PROJECT ORANISATIONAL EFFECTIVENESS AND CHANGE. TOPIC LOAN CRITERIAS OF DIFFERENT BANKS. TEACHER NAEM SIR STUDENT- SHAIKH SHARIQUE AHMED ROLL NO. 19 CLASS- B.B.A IV SEMISTER