Types of Loans

Auto Loan (AL)

Business Loan (BL)
Term Loan (TL)
Housing Loan (HL)
Mortgage – Loan against property (LAP)
Working Capital (WC)
Cash Credit (CC)
Project Finance
Construction Finance
Agriculture Finance
Machinery/Equipment Loan

Auto Loan (Only Re-Finance) Rate of interest 15% ( Dharmik – Yes Bank)

Business are of two types:- 1) Secured 2) Unsecured Rate of interest 15 to 25%

Business has to be in existence for at least 3 years
Working Capital
Housing – HL 8-8.5%

LAP rate of interest 10%

Value =
Residential = 70-75 %
Commerce = 60-65 %
Land = 50 – 55 %
Working Capital rate of interest 9.5 -10%

Cash Credit (CC) normally against stock, we charge a service charge, rate of interest 9.5 –
10 %
Project Finance, we charge a service charge, rate of interest 9.5 – 10 %
Construction Finance , we charge a service charge, rate of interest 12 %

Unsecured Loan

An unsecured loan is a loan that doesn't require any type of collateral. Instead of relying on a
borrower's assets as security, lenders approve unsecured loans based on a borrower's
creditworthiness. Examples of unsecured loans include personal loans, student loans, and
credit cards.

Secured Loan
A secured loan is a type of debt backed by collateral, such as physical assets like your
house or car, or financial assets such as stocks and bonds. Secured loans are commonly
used for large purchases.
Auto Loan (AL)
Banks and lenders in India offer loans against cars at interest rates starting at around
13.75%. About 50% to 150% of the value of the car can be availed as a loan for loan tenures
ranging from 12 months to 84 months. The processing fee applicable ranges from 1% to 3%.

How does loan against car works?

How does a Loan Against Car Work? As the name suggests, a loan against a car provides
funds by using your car as collateral. Using this product, you can acquire higher loan
amounts at lower interest rates and meet your financial needs.

Business Loan (BL)

The definition of a business loan is a financial instrument that can be used to cover both
unexpected and anticipated expenses. A business loan is borrowed money that businesses
use to cover costs they can't afford on their own in the short term. Loans are not provided
without charge.

What is business loan and how does it work?

The business loan meaning is a loan product offered to business owners who have a
running company but require external funds for operations. The investment cover expenses
such as employee salaries, rent, buying equipment, or expanding the business in other
cities.

Who is eligible for business loan?

What are the eligibility criteria for taking a business loan? To apply for our business loan,
you should be between 24 years and 70 years of age, with a CIBIL Score of 685 or higher.
Your business should also be at least 3 years old.

Housing Loan (HL)

What is difference between home loan and house loan?

A Home Loan is given to people either buying a house or constructing a house. On the other
hand, a loan that is given against property is known as a Mortgage Loan or Loan Against
Property (LAP). In this case, the property is collateral or security that is pledged with the
bank.

How does a housing loan works?

A home loan provides financing to help you purchase your dream home
comfortably. Lenders cover up to 75-90% of the cost of the home and you must make an
initial payment (down payment) amounting to the remainder. Home loans offer ample funds
at economical interest rates and have long repayment tenors.

How much home loan is allowed?

“For self-employed individuals and professionals, lenders in India typically offer home
loans up to 2-3 times their annual net income or up to 80% of the property value, whichever
is lower. Again, this may vary based on the lender's policies and the borrower's financial
profile,”

Loan Against Property is a secured loan product that can be useful for both salaried
individuals as well as businesses. The loan gets sanctioned once you mortgage your
residential or commercial property. The bank approves the credit amount, which is
equivalent to the current value of the property.
What is loan against property also known as?
A loan against property(LAP) is a secured loan that is sanctioned against the asset pledged
as collateral. This asset can either be an owned land, a house, or any other commercial
premises. The asset remains as collateral with the lender until the entire loan against
property amount is repaid.

Working Capital (WC)

A working capital loan is a loan taken to finance a company's everyday operations. Working
capital loans are not used to buy long-term assets or investments; they are used to provide
working capital to covers a company's short-term operational needs.

What is working capital for loan?

A Working Capital Loan is one that is availed of to fund the day-to-day operations of a
business, ranging from payment of employees' wages to covering accounts payable. Not all
businesses see regular sales or revenue throughout the year, and sometimes the need for
capital to keep the operations going may arise.

Is working capital loan a current liability?

Working capital loans are used for normal operations rather than big purchases. In
accounting terms, working capital means your current assets minus your current liabilities.
Current assets includes things like cash, accounts receivable, and inventory.

What is a Working Capital Loan?

A Working Capital Loan is one that is availed of to fund the day-to-day operations of a
business, ranging from payment of employees’ wages to covering accounts payable. Not all
businesses see regular sales or revenue throughout the year, and sometimes the need for
capital to keep the operations going may arise. This is usually the case with companies that
have seasonal business cycles or cyclical sales, while some other may require such a loan
during festive seasons or periods of reduced business activity. Such loans may be secured
or unsecured, that is, you may or may not be required to pledge a collateral to avail of the
loan, depending on the loan amount and the business’ financial health. A company’s working
capital is also a reflection of its financial health and liquidity position.

A Working Capital Loan is not meant to fund your business expansion or asset purchase
plans; it is a type of business loan that is used to meet your short-term financial obligations
and operational requirements. The short-term liabilities could range from payment of monthly
overheads to day-to-day expenses, purchase of raw materials, and inventory management.
These are only a few examples of a business's short-term operational requisites. With the
aid of a Working Capital Loan, your short-term necessities are taken care of, and you have
more space to plan and focus on your long-term goals. 

A Working Capital Loan is primarily applicable for small and medium enterprises, and usually
come with a loan tenure ranging from anywhere between 6-48 months. However, this tenure
varies from bank to bank. Similarly, the interest rate applicable on a Working Capital Loan is
determined by individual banks. The loan amount offered varies from one bank to another, in
line with the guidelines of the Reserve Bank of India (RBI); your business turnover is a
criterion taken into consideration when finalising the loan amount. 

Since what a Working Capital Loan is has been explained in detail, let's take a look at the
features of a Working Capital Loan: 
  Loan Amount: The loan amount offered via a Working Capital Loan depends on the
business requirements, business experience and tenure. It varies and is customised
to meet the particular financial needs of the business. 
 Interest Rate: The Working Capital Loan's interest rate varies from bank to bank and
is curated as per the borrower's needs.
 Collateral: Working Capital Loans can be either secured or unsecured, i.e., you may
or may not be required to pledge a collateral to avail of the loan. The options of
collateral range from property, securities, gold, investments or the business itself.
The bank curates the Working Capital Loan as per the collateral capability of the
borrower. While in case of unsecured Working Capital Loans, lenders take a look at
your personal financial statements, credit score and tax returns, to determine your
eligibility.
 Repayment: The loan repayment schedule is designed to match the business's cash
flow. 
 Age Criteria: Another factor is the age criteria to apply for a loan. The borrower
should be above the age of 21 years and below the age of 65 years. 
 Processing Fee: When applying for a Working Capital Loan, banks charge a
processing fee. This fee amount differs with every bank.
 Loan Applicability: You can apply for a Working Capital Loan if you are an
entrepreneur, private or public company, partnership firm, sole proprietor, MSME,
self-employed professional or non-professional. 
 Types of Working Capital Loan: Commonly, the banks offer similar types of Working
Capital Loans. These are: 

o Overdraft Facility or Cash Credit

o Term Loan
o Bank Guarantee
o Packing Credit 
o Letter of Credit
o Accounts Receivable Loan
o Post Shipment Finance

 What is the concept of cash credit?

Cash credit is referred to as short-term funding or loan for a company so that it can
meet its working capital requirements. Cash credit is a sort of loan that is offered to
businesses by financial institutions like banks.

Cash credit is a part of the Line of Credit that is allowed for individuals and institutions by
banks to draw money from the fund facility whenever required. Cash credit is a secured form
of line of credit due to the demand of collateral by the bank.

Project Finance

Project finance refers to the funding of long-term projects, such as public infrastructure or

services, industrial projects, and others through a specific financial structure. Finances can
consist of a mix of debt and equity. The cash flows from the project enable servicing of the
debt and repayment of debt and equity.

What are the 3 stages of project financing?

The process of development of a project consists of 3 stages: pre-bid stage. contract
negotiation stage. fund-raising stage.
Project Financing - Financial Scheme for Long-Term Projects
The process of development of a project consists of 3 stages:
 pre-bid stage
 contract negotiation stage
 fund-raising stage
Be it a long-term infrastructure, public services, or industrial project, sourcing funds to
implement and successfully run an undertaking is an integral part of the entire process.
With Project Financing, a company can arrange for a loan based on the cash flow generated
at the end of a project while using the assets, rights, and interests of the concerned project
as collateral.
As this scheme provides financial aid off balance sheet, the credit of the Government
contracting authority or the shareholders is not affected. Since Project Financing shifts part
of the risk associated with the project to the lenders, this financial plan is one of the most
preferred options for private sector companies.
This structured financing technique is implemented mostly by the sectors that have low
technological risks and a predictable market. Therefore, the method of funding a project
using Project Financing is generally employed by companies in the telecommunication,
mining, transportation, and power industries. Sports and entertainment venue projects also
often avail the benefit of this financing scheme. Project Financing is also preferred by many
financial services organisations because they can earn better margins if a business chooses
to opt this scheme as opposed to any other financing technique.
What is Project Financing?
Project Financing is a long-term, zero or limited recourse financing solution that is available
to a borrower against the rights, assets, and interests related to the concerned project.
If you are planning to start an industrial, infrastructure, or public services project and need
funds for the same, Project Financing might be the answer that you are looking for.
The repayment of this loan can be done using the cash flow generated once the project is
complete instead of the balance sheets of the sponsors. In case the borrower fails to comply
with the terms of the loan, the lender is entitled to take control of the project. Additionally,
financial companies can earn better margins if a company avails this scheme while partially
shifting the associated project risks. Therefore, this type loan scheme is highly favoured by
sponsors, companies, and lenders alike.
In order to bridge the gap between sponsors and lenders, an intermediary is formed namely
Special Purpose Vehicle (SPV). The main role of the SPV is to supervise the fund
procurement and management to ensure that the project assets do not succumb to the
aftereffects of project failure. Before a lender decides to finance a project, it is also important
that all the risks that might affect the project are identified and allocated to avoid any future
complication.
What Is Special Purpose Vehicle and Why Is It Necessary?
During Project Financing, a Special Purpose Vehicle (SPV) is appointed to ensure that the
project financials are managed properly to avoid non-performance of assets due to project
failure. Since this entity is established especially for the project, the only asset it has is the
project. The appointment of SPV guarantees the lenders of the sponsors' commitment by
ensuring that the project is financially stable.
Key Features of Project Financing
Since a project deals with huge amount funds, it is important that you learn about this
structured financial scheme. Below mentioned are the key features of Project Financing:
 Capital Intensive Financing Scheme: Project Financing is ideal for ventures
requiring huge amount of equity and debt, and is usually implemented in developing
countries as it leads to economic growth of the country. Being more expensive
than corporate loans, this financing scheme drives costs higher while reducing
liquidity. Additionally, the projects under this plan commonly carry Emerging Market
Risk and Political Risk. To insure the project against these risks, the project also has
to pay expensive premiums.
 Risk Allocation: Under this financial plan, some of the risks associated with the
project is shifted towards the lender. Therefore, sponsors prefer to avail this financing
scheme since it helps them mitigate some of the risk. On the other hand, lenders can
receive better credit margin with Project Financing.
 Multiple Participants Applicable: As Project Financing often concerns a large-scale
project, it is possible to allocate numerous parties in the project to take care of its
various aspects. This helps in the seamless operation of the entire process.
 Asset Ownership is Decided at the Completion of Project: The Special Purpose
Vehicle is responsible to overview the proceedings of the project while monitoring the
assets related to the project. Once the project is completed, the project ownership
goes to the concerned entity as determined by the terms of the loan.
 Zero or Limited Recourse Financing Solution: Since the borrower does not have
ownership of the project until its completion, the lenders do not have to waste time or
resources evaluating the assets and credibility of the borrower. Instead, the lender
can focus on the feasibility of the project. The financial services company can opt for
limited recourse from the sponsors if it deduces that the project might not be able to
generate enough cash flow to repay the loan after completion.
 Loan Repayment With Project Cash Flow: According to the terms of the loan in
Project Financing, the excess cash flow received by the project should be used to
pay off the outstanding debt received by the borrower. As the debt is gradually paid
off, this will reduce the risk exposure of financial services company.
 Better Tax Treatment: If Project Financing is implemented, the project and/or the
sponsors can receive the benefit of better tax treatment. Therefore, this structured
financing solution is preferred by sponsors to receive funds for long-term projects.
 Sponsor Credit Has No Impact on Project: While this long-term financing plan
maximises the leverage of a project, it also ensures that the credit standings of the
sponsor has no negative impact on the project. Due to this reason, the credit risk of
the project is often better than the credit standings of the sponsor.
What Are the Various Stages of Project Financing?
1. Pre-Financing Stage
a. Identification of the Project Plan - This process includes identifying the
strategic plan of the project and analysing whether its plausible or not. In
order to ensure that the project plan is in line with the goals of the financial
services company, it is crucial for the lender to perform this step.
b. Recognising and Minimising the Risk - Risk management is one of the key
steps that should be focused on before the project financing venture begins.
Before investing, the lender has every right to check if the project has enough
available resources to avoid any future risks.
 c. Checking Project Feasibility - Before a lender decides to invest on a
project, it is important to check if the concerned project is financially and
technically feasible by analysing all the associated factors.
2. Financing Stage
Being the most crucial part of Project Financing, this step is further sub-categorised
into the following:
a. Arrangement of Finances - In order to take care of the finances related to
the project, the sponsor needs to acquire equity or loan from a financial
services organisation whose goals are aligned to that of the project
b. Loan or Equity Negotiation - During this step, the borrower and lender
negotiate the loan amount and come to a unanimous decision regarding the
same.
c. Documentation and Verification - In this step, the terms of the loan are
mutually decided and documented keeping the policies of the project in mind.
d. Payment - Once the loan documentation is done, the borrower receives the
funds as agreed previously to carry out the operations of the project.
3. Post-Financing Stage
a. Timely Project Monitoring - As the project commences, it is the job of the
project manager to monitor the project at regular intervals.
b. Project Closure - This step signifies the end of the project.
c. Loan Repayment - After the project has ended, it is imperative to keep track
of the cash flow from its operations as these funds will be, then, utilised to
repay the loan taken to finance the project.
Types of Sponsors in Project Financing
In order to determine the objective of the project and the risks related to it, it is important to
know the type of sponsor associated with the project. Broadly categorised, there are four
types of project sponsors involved in a Project Financing venture:
 Industrial sponsor - These type of sponsors are usually aligned to an upstream or
downstream business in some way.
 Public sponsor - The main motive of these sponsors is public service and are
usually associated with the government or a municipal corporation.
 Contractual sponsor - The sponsors who are a key player in the development and
running of plants are Contractual sponsors.
 Financial sponsor - These type of sponsors often partake in project finance
initiatives and invest in deals with a sizeable amount of return.
Conclusion
Project Financing is a long-term, non-recourse or limited recourse financing scheme that is
used to fund massive projects which can be repaid using the project cash flow obtained after
the completion of the project. This scheme offers financial aid off balance sheet, therefore,
the credit of the shareholder and Government contracting authority does not get affected. In
Project Financing, multiple participants are allowed to handle the project while the ownership
of the project is entitled according to the terms of the loan only after the project is completed.
This financial scheme offers better credit margin to lenders while shifting some of the risk
from the sponsors to the lenders.
As the Indian Government continues to investment on the infrastructure of the country, it is
expected that there will be massive developments in future in terms of power, transportation,
bridges, dams etc. Most of these projects will be using the Public Private Partnership (PPP)
method indicating a rise in Project Financing during the upcoming years. This entire cycle
will further help improve the economic condition of India.
FAQs
1. What are the main features of non-recourse/recourse financing?
Some of the main features of non-recourse/recourse financing are mentioned below:
2. What are the main features of non-recourse/recourse financing?
 Government guarantee may be provided.
 Retention and Use of Trust
 Financing via Special Purpose Vehicles
3. What are the main features of non-infrastructure financing?
The main features of Non-Infrastructure Financing are mentioned below:
4. What are the main features of non-infrastructure financing?
 The loan can be availed in foreign currency.
 The proposals are disposed of fast.
 Depending on the bank, the repayment tenure may be up to 84 months.
 Funds are provided for setting up industrial/manufacturing units.
 Loans are provided for the expansion of existing units.
5. What are the main characteristics of Infrastructure Financing?
The main characteristics of Infrastructure Financing are mentioned below:
6. What are the main characteristics of Infrastructure Financing?
 You may be able to borrow in foreign currency.
 The capital costs are large.
 The revenues can only be in local currency.
 Any services that are provided cannot be traded.
 It is not easy to transfer the assets.
 The gestation periods are long.

A construction loan, also known as a self-build loan, is a short-term loan used to
finance the construction of a home or other real estate project. Once long-term
financing is secured, the contractor or home buyer must take out a construction loan
to cover the building costs.

Why is finance important in construction?

Construction finance management is a critical aspect of the success of any construction
project. Effective construction finance management ensures that projects stay on track and
within budget, from creating and monitoring budgets to managing cash flow and financial
reporting.
How do construction loans work in India?
The loan amount is disbursed in instalments only

The approved loan amount will be disbursed in phases, depending on the progress of the
construction. Most banks in India pay the approved loan amount in about 3-5 instalments.
This means that you must have sufficient funds to purchase the raw material and begin the
work.