How to Prepare Your Startup or SME for a Bank or NBFC Loan in India

Sudhir Singal · 21 Oct 2026

Most founders approach a loan as a form-filling exercise: send the documents, wait, and hope. Lenders don't see it that way. A credit officer is trying to answer one question: will this business repay on time, even in a bad year? Everything they ask for is evidence for or against that. If you prepare the evidence before you apply, you get faster approvals, better terms and fewer surprise demands for collateral.

What lenders actually look at

1. Your financial statements

Lenders usually ask for two to three years of audited financials, plus provisional or management numbers for the current year. They look at revenue growth, gross and operating margins, profit after tax, net worth and existing debt. Losses aren't an automatic no, especially at an NBFC, but you need a credible story for how the business reaches cash break-even.

What hurts: audits finished late, large unexplained "other income" or "loans and advances" lines, and provisional numbers that don't match what the audit later shows.

2. Banking conduct

Expect to share 6 to 12 months of statements for every current account and any existing loan or overdraft account. Lenders read these closely. They look at:

• Whether sales credits roughly match reported revenue
• Average balances and how often the account dips near zero
• Cheque or NACH bounces, which are a serious red flag
• Whether existing EMIs and interest are paid on the due date
• Large round-figure transfers to and from promoters or related companies

A clean account with regular inflows often matters as much as the profit and loss statement.

3. GST returns

GST data gives lenders an independent view of your sales. They compare turnover in your GSTR-1 and GSTR-3B filings with your financials and bank credits. Big mismatches, late filings or unpaid GST raise questions immediately. Many lenders now pull GST data directly, with your consent, so assume they will see it.

4. CIBIL scores and the CIBIL Rank (CMR)

Lenders check the credit report of the company and of each promoter or guarantor. For companies, TransUnion CIBIL gives a CIBIL MSME Rank (CMR) on a scale of 1 to 10, where 1 is the lowest risk. For individuals, they look at the personal credit score and repayment history.

Pull these reports yourself before you apply. Fix errors such as closed loans still showing as open, and settle small overdues on credit cards or old loans. Under RBI rules, any loan overdue for more than 90 days is generally classified as a non-performing asset, and lenders also track early stress through Special Mention Account categories (SMA-0, SMA-1 and SMA-2). Even a short history in these categories can stall an application.

5. Collateral and CGTMSE

Traditional bank loans often ask for property, fixed deposits or other security. If you don't have collateral, look at the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). Under this scheme, the government-backed trust guarantees a share of the loan, so eligible micro and small enterprises can borrow without collateral or third-party guarantees from member banks and NBFCs. Coverage limits, guarantee percentages and fees are revised from time to time, so ask your lender for the current terms.

NBFCs and fintech lenders are often more flexible on collateral, but they usually charge a higher rate for taking that risk.

6. Debt service coverage ratio (DSCR)

DSCR shows whether your cash flow can cover your loan repayments.

DSCR = (Profit after tax + Depreciation + Interest on term debt) ÷ (Interest on term debt + Principal repayments due in the year)

A DSCR below 1 means the business doesn't generate enough cash to service its debt. Lenders want a comfortable cushion above 1, and the exact threshold varies by lender and loan type. Work this out yourself, including the new loan you're asking for, before a credit officer does it for you.

For working capital limits, lenders also look at your current ratio, inventory and debtor days, and the drawing power your stock and receivables can support.

7. MIS and projections

Lenders trust businesses that know their own numbers. A simple monthly MIS covering revenue, margins, cash, debtors, creditors and inventory shows that management is in control. Pair it with realistic projections for the loan tenure, and explain your assumptions. Hockey-stick forecasts with no basis tend to hurt credibility, not help.

Bank or NBFC: which should you approach?

• Banks usually offer lower interest rates and larger limits, but they expect a longer track record, profitability and often collateral. Processing can take longer.
• NBFCs are usually faster and more flexible on vintage, losses and collateral, and some specialise in particular sectors. They generally cost more.
• A practical route for many growing companies is to start with an NBFC or a CGTMSE-backed loan, build a clean repayment record, and move to a bank as the business matures.

Match the product to the need, too. Use working capital limits (cash credit, overdraft, invoice discounting) for day-to-day cash gaps, and term loans for assets or capacity that pay back over several years. Funding long-term assets with short-term money is a common cause of cash stress.

Common reasons loans get rejected or delayed

• Revenue in financials, GST returns and bank statements doesn't reconcile
• Cheque or EMI bounces in recent bank statements
• Overdues or errors on the company's or promoters' credit reports
• DSCR too thin once the new loan is added
• Audits pending or financials prepared at the last minute
• Too much debt already, or debt with unclear terms from related parties
• Missing or inconsistent documents (KYC, registrations, board resolutions)
• Asking for an amount with no clear explanation of what it's for and how it will be repaid
• Heavy dependence on one customer or one supplier with no plan to manage that risk

A realistic timeline

• Three to six months before: clean up books, finish audits, file all GST returns on time, fix credit report issues, and stop any bounces.
• One to two months before: build the MIS, projections and DSCR workings, gather documents, and shortlist lenders that fit your size and sector.
• Application to sanction: often a few weeks at an NBFC and longer at a bank, depending on the amount, collateral and how complete your file is. Expect follow-up questions and a site visit.
• Sanction to disbursement: sign documents, create security if any, and meet pre-disbursement conditions.

Loan readiness checklist

Company documents

• Certificate of incorporation, MOA and AOA, or partnership deed
• PAN, GST registration, Udyam registration (for MSMEs)
• Board resolution authorising the borrowing
• Shareholding pattern and list of directors

Financials

• Audited financials for the last two to three years, with tax audit reports where applicable
• Income tax returns for the same period
• Provisional financials and monthly MIS for the current year
• Projections for the loan tenure, with assumptions
• DSCR and working capital workings

Banking and tax

• 6 to 12 months of statements for all bank accounts
• GSTR-1 and GSTR-3B returns for the last 12 months
• Sanction letters and repayment schedules for existing loans
• Debtor and creditor ageing reports, and stock statements

Promoters

• KYC for all promoters and guarantors
• Personal ITRs and net worth statements
• Personal credit reports checked and cleaned up

Story

• A one-page note on the business, the loan amount, its purpose and how it will be repaid

How ImpactCFO helps

ImpactCFO founder Sudhir Singal has raised over ₹1,000 Cr of debt for a microfinance lender and has led finance at SuperPe and Spandana. We prepare your business the way a credit officer will assess it: reconciling financials, GST and banking data, building the MIS, projections and DSCR workings, putting together the document pack, and shortlisting and negotiating with the banks and NBFCs that fit your business.

Related: Debt vs Equity: How Growing Indian Companies Should Fund Growth · Supply Chain Financing Explained: How SMEs Unlock Cash from Invoices · How to Calculate Your Cash Runway, and 5 Ways to Extend It