Project Report and DSCR for Bank Loans: What Banks Look For
A practical guide to project reports, DSCR and working capital assessment for business loans.
When you apply for a term loan or working capital limit, the bank does not just look at your collateral. It studies whether your business can repay from its own cash flows. The project report is your main tool to show that.
What a good project report contains
- Business profile, promoters’ background and experience.
- Product or service, market and customers.
- Cost of project and means of finance: your contribution and the loan sought.
- Projected profit and loss, balance sheet and cash flow, usually for the loan tenure.
- Repayment schedule, DSCR and break-even analysis.
- Assumptions behind sales, margins and expenses.
What is DSCR?
The Debt Service Coverage Ratio measures how comfortably your yearly cash earnings cover your yearly loan obligations. A common formula is:
DSCR = (Net profit after tax + depreciation + interest on term loan) ÷ (Interest on term loan + principal repayment due in the year)
For example, if cash earnings are ₹30 lakh and the year’s interest plus principal is ₹20 lakh, the DSCR is 1.5. Banks generally prefer a DSCR comfortably above 1, and many look for around 1.5 or more, though the requirement differs by bank and scheme. A DSCR below 1 means cash earnings do not cover repayments.
Working capital assessment in brief
For smaller borrowers, banks often use a turnover-based method, under which the working capital limit is commonly assessed at about 20% of projected annual turnover, with the borrower bringing in about 5% as margin (that is, the bank funds roughly 15% and the promoter 5%). Larger limits are assessed through cash flow or the Maximum Permissible Bank Finance method. The exact method depends on the bank, the limit size and the type of business.
Margin and promoter contribution
Banks usually require the promoter to fund part of the project cost. A typical range for term loans is 20% to 30% of the cost, but schemes for small businesses and government-backed programmes may differ.
Why proposals get rejected
- Unrealistically high sales growth with no basis.
- Projections that do not match past financial statements.
- Weak DSCR or high existing debt.
- Missing documents or unclear promoter contribution.
- Poor credit history or irregular GST and tax filings.
Prepare your numbers first
Use our loan projection tool and other financial tools to test repayment capacity before you approach the bank.
Frequently asked questions
What is a good DSCR for a bank loan?
Banks generally want it comfortably above 1, and many prefer around 1.5 or higher. Requirements vary by bank and scheme.
What documents do banks ask for with a project report?
Typically KYC, past financial statements and tax returns, bank statements, GST returns, quotations for machinery or assets, and details of collateral.
Is a project report needed for every loan?
It is almost always required for term loans and new ventures. For working capital against existing business, banks often rely on financial statements and projections.
What is the difference between a term loan and working capital?
A term loan funds assets such as machinery or premises and is repaid over years. Working capital funds day-to-day needs such as stock and receivables.
This article is for general information only and is not professional advice. Rules, fees and forms change and vary by state, so confirm the latest position with the official portal or a qualified professional before acting.
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