Introduction
Did you know that under the Aatmanirbhar Gujarat Scheme 2022, manufacturing units in Gujarat can benefit from capital subsidies of up to 25% and interest subsidies of 5-7% on project finance loans? This makes Gujarat one of the most attractive states for MSMEs and large-scale manufacturers seeking financial support for new or expansion businesses.
However, securing such financing can be complex. This is where project finance consultants in Ahmedabad come in. Project Finance is a way of getting funds for long-term industrial projects. Opting for bank financing opens up additional benefits, as it makes manufacturing units eligible for certain central & state government subsidies, such as capital and interest subsidies in Gujarat. These subsidies can significantly reduce the cost burden on companies, especially MSMEs and large-scale manufacturers.
What is Project Finance?
Project Finance is a form of long-term funding where lending banks appraise the project’s feasibility based on future cash flows. It’s mostly used for manufacturing & infrastructural projects. Manufacturing projects require significant capital expenditure,
- Building Construction & Shed
- Acquiring Plant and machinery
- Electrification and equipment
- Meeting working capital requirements
Who is Eligible for Project Finance?
- Proprietorship Firm
- Partnership
- Limited Liability Partnership (LLP)
- Private Limited Company
- Public Limited Company
- Society
- Trust
Types of Project Finance?
Term Loan for CAPEX: Project Finance in the form of a Term Loan for the CAPEX expenditure to purchase plant & Machinery, construction, electrifications, furniture & Fixtures.
Working Capital Finance/Cash Credit for OPEX: Working Capital financing for OPEX expenditures like purchasing raw materials and daily operations.
How Project Finance Works?
Step: 1 Project Planning: Borrower defines the Project idea & estimated cost of the Project of Building, Plant & Machinery, and other assets as well as working capital requirements.
Step: 2 Submission of Proposal to Bank: Submission of Project proposal with all the relevant documents with cost estimates, experience, CMA report with security details.
Step: 3 Bank Appraisal: The Bank reviews the project feasibility and checks on the borrower’s ability to execute it.
Step: 4 Project Cost & Collateral Security Evaluation: The bank analyzes the project’s total cost and evaluates the available security/collateral.
Step: 5 Cash Flow & Ratio Analysis: The Bank assesses future cash flows and calculates financial ratios (DSCR, profitability)
Step: 6 Bank Financing Decision: Based on the evaluation, the bank generally finances up to 60% for Construction and for Plant & Machinery it’s up to 75% of the cost.
Step: 7 Borrower Margin Contribution: The borrower brings in the remaining funds/margin (25-40%) through equity or unsecured loans.
Step: 8 Loan Disbursement: The loan is disbursed in stages as per project progress (construction, machinery acquisition).
Step: 9 Project Implementation: The project proceeds with construction and machinery installation.
Step: 10 Monitoring & Repayment: The bank monitors cash flow generation, and repayment begins as scheduled.
Highlights of The Problems Faced by Businesses
Delayed Loan Sanction
“You have been waiting for over 6 months for the sanction of your loan and it is still pending approval due to missing paperwork and irregular follow-up.”
Rejection of Subsidy Application
“You fail to meet the deadline for submission of the subsidy application and hence the application gets rejected. As a result, your project suffers from financial stress because of the lack of subsidy support.”
Limited Access to Financing Options
“You apply for the loan with your current bank, leaving behind other more favorable offers from other banks. The consultant would have connected you to more friendly financing offers.”
Unaware of Subsidy Conditions
“You did not know the specific conditions that have to be met for subsidy. You have purchased local second-hand machinery you applied for the subsidy yourself and the file got rejected as second-hand machinery is not eligible for subsidy.”
Loans From Ineligible Financial Institutions:
“You took a machinery loan of Rs. 2 Crore from an NBFC, but when you applied for the subsidy, you came to know that your application got rejected as finance from NBFCs is not eligible for interest subsidies.”
These can be avoided by hiring an experienced project finance consultant and thus structuring the loan and subsidy processes in such a way that all benefits are maximized without missing any eligibility criteria.
The Role of Project Finance Consultants
Looking at the complexity of the procedure hiring an experienced consultant ensures a smooth, timely, and hassle-free process. We at SDS Fin Advisory LLP are the best project finance consultants in Ahmedabad to help businesses avoid time-consuming and complicated financial hurdles, allowing promoters to focus on their core business. We work to secure MSME Loans, CGTSME Loans, PMEGP Loans & Project Finance at the lowest interest rates with the most favorable terms and minimal security requirements. In addition to that, we make sure you will get maximum subsidy benefits.
What Services Do Project Finance Consultants in Ahmedabad Provide?
For Project Finance:
- Understanding the Finance requirements
- Preliminary discussion with Bank officials for in-principle approval
- Collection of documents and preparation of Detailed Project Report (DPR) with the CMA report
- Bank Loan application and other forms & Discussion on Collateral Security
- Co-ordinating Visit of bank officials to the unit
- Following up for Loan Appraisal & Rating
- Following up for maximum benefit of Interest Rate
- Advisory Services for Valuation & Title Report
- Disbursement of Bank Loan
For Govt. Subsidy:
- Collecting documents and Preparing application forms
- Submitting online/offline Application
- Follow-up with department
- Reply to queries
- Co-coordinating visits to the unit by the department office
- Arranging subsidy sanction letter
- Making subsidy claim
- Release of subsidy to your account
Why Is Taking a Bank Loan Beneficial, Even If You Have Sufficient Funds to Establish a Manufacturing Project?
Scenario: 1 You Purchase Rs.1 Crore Machinery Using Your Own Funds
- You miss out on the opportunity to claim Capital Subsidy.
- You forgo the Interest Subsidy of 5%-7%.
- You could have utilized your funds for managing working capital, or even placed the ₹1 crore in a Fixed Deposit (FD), earning a return of 7%.
Scenario: 2 You Purchase Rs.1 Crore Machinery Using a Bank Loan
- You will receive a 10% Capital & 5% Interest Subsidy.
- If the bank’s interest rate is 9%, you will get a 5% interest subsidy reimbursement from Govt. So, your effective interest rate becomes 4% (9% – 5% Interest subsidy).
- You can park your own funds in FD and earn a 7% return, covering the 4% interest cost and earning an additional 3% profit.
The Major Difference
By taking a loan and utilizing government subsidies, you not only reduce your cost of financing but also optimize the use of your funds. This enables you to stay competitive by fully utilizing the benefits offered by government subsidy schemes.
Government Schemes and Subsidies for Project Finance in Ahmedabad
Government support and incentivized the MSME units as well as large units who are planning to set up units in Gujarat by providing Capital, Interest, SGST, Power, CGTMSE, and many more subsidies under the Aatmanirbhar Gujarat Scheme 2022.
For Textile manufacturers, the government has recently rolled out a new scheme of Gujarat Textile Policy 2024 to incentivize the textile units. Know more about Textile Policy 2024 Subsidy.
Government subsidy procedure involves too much documentation, calculations, liaising with government departments, understanding technical details & making subsidy claims every 6 months or 1 year. Selecting the right subsidy consultant is a crucial step toward minimizing costs and achieving financial success in your project.
Why Hire a Project Finance Consultant?
1. End-to-End Support
Offer comprehensive expert support, starting from preparing documentation to the ensuring subsidy amount is credited to your account.
2. Financial Structuring
Structure the cost of the project and means of finance in the most optimal way to maximize the subsidy benefits.
3. Risk Assessment
Evaluate project risks to present the strongest case to the banks.
4. Government Loan Schemes & Subsidies
Well-versed in various government schemes, subsidies, and incentive programs. We ensure businesses can access the maximum benefits of capital subsidies, interest subsidies, SGST subsidies, Power Subsidies, and other benefits.
5. Liaising
Coordinate with nationalized and private banks, NBFCs, and cooperative banks to secure the best financial terms for your project.
FAQs
1. What will be the consultant’s charge?
Most of the consultants charge based on a flat fee, a percentage of the loan amount, or a combination of both.
2. What are the services they will provide?
From arranging bank finance to assisting various government subsidies they provide a one-stop solution to your financial needs.
3. Is subsidy available on project finance?
Yes, capital & interest subsidies are available if you finance your project through a bank whether it is a national, private, cooperative bank, or a financial institution like SIDBI. Also, finance from NBFC and private are not eligible for capital & Interest subsidies. Other subsidies may still be applicable.
Conclusion
The process of securing project finance is quite complicated, but it becomes simple when experienced consultants provide customized solutions with maximum subsidy benefits. The project finance consultants in Ahmedabad help MSMEs and large manufacturers in the processes of loans and subsidies while making the businesses concentrate on core activities and allowing end-to-end support throughout every implementation stage. Contact SDS Fin Advisory LLP today and let us simplify your financial journey!