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Project report for a bank loan: what an MSME report must show and how banks read it

A project report sets out what your business will do, what it will cost, how the cost will be funded and how the loan will be repaid. No regulator prescribes one format for every loan. Banks appraise the project's financial and technical viability, and test repayment with ratios that RBI defines, such as the debt service coverage ratio. Government schemes such as PMEGP and CMEGP publish their own templates.

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What a project report is for

A project report, often called a DPR (detailed project report), is the document that explains a new project or an expansion to a lender. It answers four questions: what will the business do, what will it cost, where will the money come from, and how will the loan be repaid.

No regulator prescribes a single project report format for every bank loan. What a bank does is appraise the project and take its own credit decision on whether it is viable (PMEGP guidelines compendium). Government schemes that pay a subsidy add their own templates and rules. The bank reads your report for one thing above all: whether the cash the business generates can repay the loan with room to spare.

The sections lenders expect

The table below is general banking practice for a small-business project report. It is not an official format from RBI or any bank. Use your bank's or your scheme's format where one exists.

Section What to put in it What the bank checks
1. The promoter Your background, experience, training and existing business Whether you can run this project
2. The project The product or service, the location, the market and the buyers That the activity is real and allowed
3. Project cost Land and building, machinery with supplier quotations, other assets, preliminary expenses, working capital margin That the cost is realistic and documented
4. Means of finance Your own contribution, the term loan, the working capital limit, any subsidy That the funding adds up to the cost
5. Sales and costs Expected capacity use, sales, raw material, wages, power, rent, other costs, year by year Whether the business can earn a profit
6. Working capital Stock, receivables and payables, and the limit you need That day-to-day cash is planned
7. Profit and cash flow Projected profit and loss, balance sheet and cash flow for the loan period Where the repayment comes from
8. Repayment schedule Instalments, interest, any moratorium That cash flow covers each instalment
9. Key ratios DSCR, current ratio, debt to net worth, break-even Repayment capacity and risk
10. Approvals Licences, registrations, Udyam, pollution or other clearances That the project can legally run

The ratios banks use, as RBI defines them

RBI has written down the definitions of the ratios lenders use (RBI notification, 07-Sep-2020, RBI notification):

Ratio RBI's definition, in plain words What it tells the bank Source
DSCR (debt service coverage ratio) Net cash accruals plus interest and finance charges for the year, divided by the current portion of long-term debt plus interest and finance charges Whether the year's cash can pay the year's loan instalments RBI notification, 07-Sep-2020
Current ratio Current assets divided by current liabilities Whether short-term bills can be paid RBI notification
TOL/ATNW All outside liabilities divided by tangible net worth How much of the business is funded by others RBI notification
Total debt to EBITDA All loans divided by profit before tax, interest, depreciation and amortisation How many years of earnings the debt equals RBI notification

A DSCR below 1 means the cash flow cannot pay the instalments. Each bank sets the level it wants, so ask. Test your numbers with the DSCR calculator, and read the DSCR guide.

Working capital in the report

Working capital is the money tied up in stock and receivables, less what suppliers fund. Gross working capital is total current assets; net working capital is current assets minus current liabilities (RBI explanatory notes). For micro and small enterprise borrowers with working capital limits up to ₹5,00,00,000, banks were told to compute the limit at a minimum of 20% of projected annual turnover (PIB press release, 23-Jul-2019). Show the turnover you project and how you reached it. The working capital guide covers the methods.

Means of finance: making the numbers add up

The cost of the project must equal the money from all sources: your contribution, the loans and any subsidy. Schemes set their own rules on what counts:

If your loan is linked to a scheme, build the report to that scheme's rules from the start.

Templates from government schemes

Scheme or portal What it offers Source
PMEGP The online application form links to a template for preparing your report PMEGP guidelines compendium
Maharashtra CMEGP portal A sample project report to download, and a link to Stand-Up Mitra project profiles Maharashtra CMEGP portal
UP MSME 1-Connect A "Make Your Own DPR" tool UP MSME 1-Connect

The PMEGP project report guide covers that scheme's report in detail. State schemes are on the state schemes hub.

Mistakes that sink a project report

  • An inflated project cost. PMEGP guidelines say exaggerating the cost to claim a higher subsidy should not be allowed (PMEGP guidelines compendium). Under CMEGP, a bank refers such a proposal back to the district committee (Maharashtra CMEGP guidelines).
  • Sales with no basis. Back every sales figure with orders, capacity or a market you can name.
  • No repayment test. Show the DSCR for every year of the loan, not just the best year (RBI notification, 07-Sep-2020).
  • Missing quotations. Attach supplier quotations for every machine and major asset.
  • Numbers that do not tie. The cost table, the means of finance and the projected balance sheet must agree.

Who can prepare the report

You can, using the scheme's template where one exists. Under PMEGP the applicant prepares the report from the template (PMEGP guidelines compendium). Some applicants take help from a chartered accountant or consultant for the projections; PMEGP does not require one. Do not pay anyone who promises that a report will get a loan approved, because the bank decides on viability (PMEGP guidelines compendium, Maharashtra CMEGP guidelines).

Your next step

A good report sits on a sound file. Run the free loan readiness check to see how a lender may read your business. Then see the full business loan documents checklist.

Frequently asked questions

A document that sets out the project, its cost, how it will be funded and how the loan will be repaid. The bank uses it to appraise viability (PMEGP guidelines compendium).

No single format applies to every bank loan. Schemes such as PMEGP publish templates, and banks may have their own (PMEGP guidelines compendium).

The DSCR first, then the current ratio and debt to net worth. RBI defines each one (RBI notification, 07-Sep-2020, RBI notification).

It depends on the scheme. PMEGP and CMEGP exclude land (PMEGP portal, Maharashtra CMEGP guidelines).

For micro and small borrowers up to ₹5,00,00,000, banks were told to compute it at a minimum of 20% of projected annual turnover (PIB press release, 23-Jul-2019).

The Maharashtra CMEGP portal offers one, and the PMEGP application links a template (Maharashtra CMEGP portal, PMEGP guidelines compendium).

Project ki laagat, paisa kahan se aayega, bikri aur kharch ka anumaan, aur loan kaise chukega, yeh sab likhiye. DSCR se dikhaiye ki cash flow kist chuka sakta hai (RBI notification, 07-Sep-2020).

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