Receiving a sanction letter is an important milestone, but the sanctioned amount alone does not determine whether the facility is suitable. The complete structure should be reviewed before acceptance and before documentation begins.

1. Sanctioned amount and facility structure

Check whether each facility matches the intended purpose. Cash credit, overdraft, term loan, bank guarantee and letter of credit limits solve different needs. Also review sub-limits, interchangeability and whether the proposed structure supports the operating cycle.

2. Interest rate and reset terms

Understand the benchmark, spread, effective rate and how frequently the rate may reset. Compare the quoted rate with processing fees, documentation charges, valuation costs, insurance and other recurring or one-time expenses.

3. Tenure, moratorium and repayment

For a term facility, test whether instalments begin at the right time and whether the repayment schedule matches expected cash generation. A longer tenure may reduce the instalment but increase the total interest outgo.

4. Security and guarantees

Review the primary and collateral security, valuation requirements, charge creation and personal or corporate guarantees. Confirm that the security package is proportionate and that all owners understand their obligations.

5. Financial and operational covenants

Sanctions may require the business to maintain specified ratios, route transactions through the lender, submit information periodically or obtain consent for further borrowing and major changes. These obligations should be practical and clearly understood.

6. Pre-disbursement conditions

Prepare a checklist of documentation, approvals, promoter contribution, insurance, legal opinions, registrations and other conditions that must be completed before funds can be released.

How KSV adds value

KSV helps businesses read the sanction as a complete financial arrangement, compare important terms, identify practical issues and coordinate clarifications with the lender before acceptance, documentation and disbursement.

This article is for general understanding. The actual effect of a sanction depends on its wording, facility type, borrower circumstances and applicable lender and regulatory requirements.

Would you like an independent review of a proposed sanction?

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