Understanding sources of Finance

&
Bank Loan Process
 Sources of Finance & Bank Loan Process
 Analysis of financial viability of a project helps to study potential of project
from financial angle.
 Also it helps understand investment requirements & its sources.
Some major components of financial viability are :
1. Cost of establishing a project
2. Means of finance or sources contributing to project cost
3. Capacity utilization
4. Income & expenditure estimates on annualized basis.
5. Profitability projections
 Sources of Finance & Bank Loan Process
Case Study of a Agro Processing Unit – Priya Foods
Project Cost Particulars

Sr.No. ITEMS OF INVESTMENT Capital cost (Rs.in Lakhs)

1 Land 6000 sq.ft@ Rs.50 per sq.ft 3

2 Site Development 0.12

3 Civil Works 20.2

4 Plant & Machinery 72.51

5 Misc. fixed assets 2.8

6 Prelim. & Pre-op. expenses 5.4

7 Working capital margin 5.5

8 Contingencies @ 10% 9.68

TOTAL PEOJECT COST 119.21

Sources of Finance & Bank Loan Process

Means of Finance (Rs. in Lakh)

Source of Finance Amount % share

Promotor's equity 26.82 23

Term loan - Bank 62.39 52

Investment Subsidy 30 25

Total 119.21
 Sources of Finance & Bank Loan Process
Assumption for working capital requirements :
1. Enterprise is expected to secure net profit, to break even in its first year of
operation.
2. Capacity utilization assumed at 30% for first year
3. As per product mix, annual production capacity amounts to 745.4 Lac tons.
4. Annual cost of RM in first year is Rs.223.6 tons. (onion, carrot, potato, garlic
& ginger.) Raw material stocking period is taken at 2 months. This is valued at
Rs.5.41 lac (Rs.32.43 lac /12 months X 2 months)
5. Value of consumable /packing material is considered for 1 month stocking.
consumables – Rs.5000
Packing material – Rs.19000
Value of Work in process for first year
a. Manufacturing cycle - 1 day
b. Quantity of WIP in first year- 0.745 tons
c. Cost of WIP – Rs.17000 per ton
d. Working capital on account of WIP – Rs.13000
 Sources of Finance & Bank Loan Process
Value of finished goods stock for first year
a. Carrying of finished goods – ½ months
b. Quantity of finished goods to be carried – 9.32 tons
c. Price of finished goods – Rs.24000 per ton
d. Working capital for finished goods – Rs.2.24 lacs
No working capital needed on credit sales, since sales are assumed on cash
basis.
 Wages & salary for one month- Rs.70000
 Utilities for one month – Rs.100000
 Admn. & selling expenses/ Repairs and maint for one month – Rs.32000
 Working capital requirement – Rs.10.00 lacs
 Assessment of working
Sources of Finance & Bank Loan Process
capital from Bank
Margin Bank Margin
Sr.no. Component No. of days Amount (%) Loan Amount

1 Raw material 60 5.41 50 2.71 2.7

2 Consumables 30 0.05 30 0.03 0.02

3 Packing material 30 0.19 30 0.13 0.06

Stock of WIP @ Rs.17000
per ton 1 0.13 30 0.09 0.04

Stock of finished goods

4 @24000 per ton 15 2.24 30 1.57 0.67

5 Wages & salaries 30 0.7 50 0.35 0.35

6 Utilities 30 1 50 0.50 0.50

7 Selling & admn expenses 30 0.25 0.25

8 Repairs & maintenance Lumpsum 0.07 0.07

TOTAL (Rounded off) 10.00 5.00 5.00

 Sources of Finance & Bank Loan Process
Capacity, Product-mix &
Income at full capacity
Amount (Rs.in
Commodity Output (tons) Price (Rs/ton) Lakh)
Onion 360 35000 126
Garlic 228.6 30000 68.58
Potato 92.3 32000 29.54
Peas 20 75000 15
carrot 17 90000 15.3
Lady's Finger 15 80000 12
Ginger 12.5 100000 12.5

TOTAL 745.4 278.92

 Sources of Finance & Bank Loan Process
PROJECTED
PRODUCTION &
INCOME

YEAR 1 2 3 4 5 6 7 8

Installed capacity 745.4 745.4 745.4 745.4 745.4 745.4 745.4 745.4

Capacity Utilization 30% 40% 50% 60% 60% 60% 60% 60%

Production (tons) 223.6 298.16 373.7 447.24 447.24 447.24 447.24 447.24

Income 83.68 111.57 139.46 167.35 167.35 167.35 167.35 167.35

Sources of Finance & Bank Loan Process

Thank you .