Seven reasons a project finance file gets declined
A decline letter says almost nothing. The real reason is usually one of a small number of things, and four of them could have been dealt with before the file was ever submitted.
1. The title is not clean
Unclear chain of ownership, an unreleased earlier charge, an unresolved family claim, or a development agreement whose terms do not give the applicant the right to do what the project assumes.
Fixable before applying? Sometimes, and it takes months. Get a title opinion from a panel advocate before you approach anyone, not after a bank's advocate finds the problem.
2. Approvals are pending, not obtained
"Applied for" is not "received". A file built on approvals expected next month will wait for next month, and the waiting is counted against it.
Fixable? Yes — by applying later, with the approvals in hand.
3. Bureau records
An overdue account, a settled loan showing as settled rather than closed, or a default in a group company where the promoter is a director. Directors' personal records are pulled as well as the firm's.
Fixable? Often, and it is the most commonly ignored one. Pull your own commercial and personal bureau reports first. Errors in them are frequent and take weeks to correct — weeks better spent before an application than during one.
4. Not enough of the promoter's own money in the project
A lender wants to see the promoter committed before it commits. If the land is still substantially unpaid and little construction has been done, the request looks like funding the whole risk rather than sharing it.
Fixable? Only by putting more in, or by asking for less.
5. The repayment does not work if sales are slow
Projections that only service the loan at an optimistic sales pace. The credit team runs its own slower scenario, and if nothing is left in it, the answer is no however good the location is.
Fixable? Yes — by asking for a smaller facility, a longer tenor, or by phasing the project.
6. Deviation from the sanctioned plan
What is standing does not match what was approved. Extra floors, altered setbacks, a changed use. This turns a lending decision into a regularisation question with an uncertain answer, and lenders do not price uncertainty — they avoid it.
Fixable? Rarely, and never quickly.
7. The lender simply does not want more of this
The least satisfying reason and a real one. Banks hold internal caps on exposure to a sector, a geography, a ticket size or a category. A perfectly good file can arrive when that particular door is shut, and nothing in the file is the problem.
Fixable? Not in that file. It is fixable by going to the right institution instead — which is a matter of knowing who is currently active in your category.
The pattern
Reasons two, three, four and five are visible to the developer before any application is made. Between them they account for most of the declines we see.
The cost of checking them yourself first is a few weeks and a few thousand rupees. The cost of not checking is a decline on record, and a second lender asking why the first one said no.
Who writes this, and what they are not. The Loan Consultant View is written by Kamal Thakkar & Co., a loan consultancy that places files with banks and NBFCs in Ahmedabad every week. We are an intermediary, not a lender. We do not approve, decline or price any loan.
This column is published to inform, not to solicit business. Nothing in it is an offer of finance, an invitation to apply for a loan, or advice on any particular project. Lending norms differ between institutions and change without notice — verify the position for your own case with the bank concerned. Full terms are on our disclaimer page.