Discuss Terms and Conditions of SME Loan

Terms and Conditions of SME Loan

The SME department of BRAC Bank will provide small loans to potential borrower under the following terms and condition:

The potential borrowers and enterprises have to fulfill the selection criteria

The loan amount is between Tk. 2 lacs to 30 lacs

SME will impose loan processing fees for evaluation / processing a loan proposal as following:

Table : loan processing fees

Loan can be repaid in two ways:

1.   In equal monthly loan installment with monthly interest payment Or

2.   By one single payment at maturity, with interest repayable a quarter end residual on maturity

Loan may have various validates, such as, 3 months, 4 months, 6 months, 9   months, 12 months, 15 months, 18 months, 24 months, 30 months and 36 months

The borrower must open a bank account with the same bank and branch where the SME has its account

Loan that approved will be disbursed to the client through that account by account payee cheque in the following manner: Borrower name, Account name, Banks name and Branch’s name

The loan will be realized by 1st every months, starting from the very next months whatever the date of disbursement, through account payee cheque in favor of BRAC Bank Limited A/C. With Bank’s named and branches name

The borrower has to issue an account payable blank cheque in favor of BRAC Bank Limited before any loan disbursement along with all other security.

The borrower will install a signboard in a visible place of business of manufacturing unit mentioned that financed by “BRAC Bank Limited”

The borrower has to give necessary and adequate collateral and other securities as per bank’s requirement and procedures

SME, BRAC Bank may provide 100% of the Net Required Working Capital but not exceeding 75% of the aggregate value of the Inventory and Account Receivables. Such loan may be given for periods not exceeding 18 months. Loan could also be considered for shorter periods including one time principal repayment facility, as stated in loan product sheet

In case of fixed asset Financing 50% of the acquisition cost of the fixed asset may be considered. While evaluating loans against fixed asset, adequate grace period may be considered depending on the cash generation after the installation of the fixed assets. Maximum period to be considered including grace period may be for 36 months.

Security Documentation against Loan

A document is a written statement of facts and a proof or evidence of particular transaction between parties involved. While allowing any disbursements against credit facilities to borrowers, it should be ensured that prior to any disbursements; security documentation is fully and properly completed.

Purpose of Decorate Documentation and its Importance

Documentation is necessary for the acknowledgement of a debt and its terms and conditions by the borrower and the creation of charge on the securities in favor of the bank by the borrower. Correct and proper documentation allows a bank to take legal measures against the default borrowers.

If filing a suit with the courts against a default borrower becomes necessary, the court will first review all documents. If any of the documents is found to be defect or incomplete, the purpose of security documentation will be defeated and a court ruling in favor the bank cannot be expected. Proper care should, therefore, be taken while completing security documentation.

Type of Securities

The following listed securities may be obtained from borrower against loan to enterprises, either individually or in a combination.

It is really up to the bank what they would like to accept as security from the borrower as not all the securities stated below are suitable:

Mortgage of loan and other immovable property with power of attorney to sell

Lien of Fixed Deposits receipts with banks and other non-banking financial institutions, lined, these have to confirm by the issuer

Lien of Pratirakshay sanchay patra, Bangladesh sanchay patra, ICB unit certificates and wage earner development bond, all considered Quasi or Near cash items

Lien of shares quoted in the stock exchange (This is rarely accepted)

Pledge of goods (Banks are akin to stay away from such securities now a days)

Hypothecation of Goods, Book Debt & Receivables, Plant & Machineries

Charge on fixed assets of a manufacturing enterprise

Lien of cheque, Drafts and order

Lien of work orders, payment to be routed through the bank and confirmed by the issuer

Shipping documents of imported goods

Land Related Securities Documentation Process

Each SME unit offices are lilies with at least two local lawyers who will work on behalf of the bank. These always will be employed whenever a borrower and where the security will be landed and immovable property accept a loan sanction. Any one of the lawyers will be provided with photocopies of all the relevant land related documents and while handing over show the original documents to them, the lawyers will carry out checks of the originals and if satisfied returned to the borrower.

The documents generally provided are:

• Title Deeds or Deed of conveyance otherwise known as ‘Jomeer Dalil’ which signifies ownership of a particular land
• Baya Dalil or Chain of Documents, which signifies that the conveyance of titles has been proper and legal
• Mutation Certificate if Khatian which signifies that the title if the land has been duly registered in the Government/Sub-registrar’s records
• Duplicate Carbon Receipt or DCR
• Latest Khajna or land rent receipt
• Purchase such as CS Khatian, SA Khatian and BS Khatian

Mouja Map

Municipal rent receipts if the land falls within a municipal area

The lawyer will then carry out a search at the Sub-registrar of land’s office to check if the proffered land is actually registered in the name of the proposed mortgagor and whether the said land is free from any encumbrances. The Sub-register’s office, which means that the land or immovable property can be mortgaged to the bank, then the lawyer, will provide his own opinion on the acceptability of the property, whether it is legally held and explain the chain of ownership. If all is acceptable, the lawyer will draw up the Mortgage Deed that will be registered, the irrevocable power if attorney to sell the land and the Memorandum of Deposit of Title Deed. The lawyer will have the borrower or the Mortgagor, if different or 3rd party, sign the documents in front of the Sub-registrar of land to register the mortgage, The CRO must ensure that the receipt for the original Mortgage deed must be signed off (Discharged) at the back of the receipt so that the bank may obtain the originals in the future. The borrower will bear all the charges and will pay directly at the Sub-Registrar’s office including the cost of the stamp paper required. The cost of the lawyer will also be realized from the borrower be an account payee cheque in favor of the lawyer and handed over to the lawyer straight away.

The charges related to the creation of mortgages and other associated costs are incorporated in a separated sheet and are attached herewith. The CRO will have all other security documents, as sent by SME HO, signed by the borrower and hand carry all the security documents including all the original land documents and deliver those to the credit administration officer who will check the list of documents and receive those through a check list in writing. The credit administration officer once satisfied will prepare the disbursement memo to disburse the loan.

Mortgage

Equitable Mortgage or Memorandum of Deposit of Title Deeds

It is created by a simple deposit of title deeds supported by a Memorandum of Deposit of Title Deeds along with all the relevant land documents. All the searches and verification of documents as stated above must be carried out to validate the correct ownership of the property. This deed also provides the bank power to register the property in favor of the bank for further security, if needed.

Registered Mortgage

It is created by an execution of a Mortgage Deed registered irrevocably in favor of the bank at the Sub-Registrar of land’s office. This virtually gives the bank the right to posses and self if accompanied with a registered irrevocable power of attorney to sell the property executed by the owner of the property, in case of default.

Basic Charge Documents

Sanction Letter

Once a loan is approved, the borrower is advised by a ‘Sanction or offer letter’ which states the terms and condition s under which all credit facilities are offered and which forms an integral part of there security documentation. If the borrower accepts, then a contract between the bank and the borrower is formed and which both party are obligated to perform. Accordingly, all other charge documents and securities are drawn up and obtained. A standard sanction letter is attached herewith. All documents shall be stamped correctly and adequately before or at the time of execution. An un-stamped or insufficiently stamped document will not form basis of suit. Stamps are of 4 (Four) kinds. These are Judicial, Non-judicial, Adhesive and embossed impressed. Documents to be executed (Signed) by the borrowers concerned must be competent to do so in official capacity.

Following precautions should be taken at the time of execution of the security documents:

The signature on the documents should be made in the presence of the CRO. The CRO should sign as witness on all charge documents

The document are to be filled in with permanent ink or typed

If the document consist more than I page, the borrower should sign on each page

If the signature of any third party is required to be obtained whose specimen signature is not available, then the main applicant should verity the specimen signature of the third party

No document or column in any document should remain blank

As far as possible there should be no erasure, cancellation or alternation in the document. If, however, there is any correction, overwriting or alteration, then that must be authenticated by a full signature of the signatory.

After stamping and execution of documents, the question of registration comes up. However, not all documents are required to be registered. For the extension of any type of credit/loan facility, the following loan documents, which are considered basic, should be obtained from all borrowers:

• Demand Promissory Note
• Letter of Continuity (This is not always taken if there is only loan disbursement)
• Letter of Arrangement
• General Loan Agreement
• Letter of Disbursement
• General Loan Agreement
• Letter of Disbursement; Basically a letter requesting disbursement of the loan
• Letter of Installment, in case the facility is to be repaid in installment