Every term loan for a new or expanding small business - Mudra, PMEGP, CGTMSE-backed, or a regular MSME loan - needs a project report (also called a DPR or CMA-style projection). The banker reads it to answer one question: can this business repay the loan from its own cash flow?
The sections
- Promoter profile - who you are, education, experience in this line, other income.
- The business - what you'll make or sell, to whom, why there's demand, location.
- Project cost - land/building (or rent deposit), plant and machinery (with quotations), furniture, pre-operative expenses, contingency, and working capital margin.
- Means of finance - your contribution, term loan, working capital loan, subsidy.
- Production / sales assumptions - capacity, utilisation (start 50-60%, rise yearly), prices.
- Cost of production - raw material, wages, power, rent, repairs, admin.
- Projected profit and loss - 5 to 7 years.
- Projected balance sheet and cash flow.
- Depreciation - WDV rates (plant & machinery usually 15%, furniture 10%, computers 40%).
- Loan repayment schedule - EMI, moratorium.
- Ratios: DSCR, current ratio, break-even.
- SWOT and risks.
The ratios bankers look at
| Ratio | Formula | What banks usually want |
|---|---|---|
| DSCR | (PAT + depreciation + interest on term loan) ÷ (interest on term loan + principal repaid) | Average 1.25-1.5, no year below about 1.2 |
| Current ratio | Current assets ÷ current liabilities | 1.33 or more |
| TOL/TNW | Total outside liabilities ÷ tangible net worth | Below about 3 |
| Break-even | Fixed costs ÷ contribution margin | Reached in year 1-2 at modest capacity |
A DSCR below 1 means the business can't pay the EMI from profits - the loan will be rejected.
Common mistakes
- 100% capacity in year 1.
- No working capital in project cost.
- Revenue that doesn't match the machine's capacity.
- Forgetting depreciation or tax in the P&L.
- Same numbers copied across all years.
- No quotations for machinery.
Build your project report - enter costs and expected sales; the EMI and DSCR are calculated exactly.