Documentation required for Bank Advances

Basics of Documentation required for Bank Advances

Documents are written form of agreed terms and conditions between two or more than two parties for a particular transaction or a set of transactions. Documents decide the accountability/answerability of each party in case of breach or violation of the agreement.

In general, each type of advances requires different documents which are either given in the Advance Manual of a particular bank or in the circular for specific type of advances but basic documentation applicable to all types of bank advances are similar.

Following Documents are relevant for all types of Bank Advances:

1. Acceptance of the Sanction Letter encloses all the terms and conditions for sanction of a specific advance.

2. Demand Promissory Note to make borrower liable to repay the amount of advance taken, on demand by the lender.

3. Hypothecation Agreement showing the Hypothecation of any of the movable or immovable asset of borrower having current market value equivalent or high that of the money borrowed. Hypothecated asset can be sold in case of borrower makes default in payment or unable to pay the debt. Hypothecation is generally taken for assets like stocks, Vehicle etc.

In case of hypothecated goods are stored at any place other then the premises/godown of borrower, Access Letter/Agreement is also required to be furnished by borrower to lender bank.

4. Mortgage of the Assets, generally, immovable property like land, building etc. which represents the dues can be recovered by way of sale of mortgaged asset. This also represents the collateral and/or additional security given by the borrower to the bank.

5. Guarantor Agreements which is required to be executed by the guarantor of the borrower. This agreement makes guarantor liable to pay the debt in case borrower fails to repayment same.

6. Acknowledgement of debts to be given by the borrower confirming the dues as on a particular day and the securities which are charged to the bank by way of security for the advance.

7. Original Title Deeds, Share certificate and record of lien noting by the authorities for the borrowing of the bank and an undertaking not to allow the sale till the bank liability is not fully repaid.

The specific requirements of the documentation applicable for the particular type of entity are as under:

In case of Private Limited Company:

  1.  True extracts of the board meeting resolution passed regarding acceptance of the terms and conditions for the advances. It should include clause that the borrowing are within the prescribed limits and are permissible under the clauses of Article of Association.
  2. Authorizing directors to execute the documents for the said sanction and also to affix the company’s common seal on the document executed and signed by directors.
  3. Creation of the Charge on the Company’s Assets with the ROC to the extent of total borrowings i.e. Charge Registration Certificate.
  4. Certified Copy of MOA and AOA.
  5. Certification of Incorporation.

In case of Partnership firm:

  1. Certificate of Partnership Registration with the registrar of firms.
  2. Authenticated Partnership Deed.
  3. Limited Liability Partnership Documents, if any.

In case of HUF

  1. List of Coparceners
  2. Coparceners liability agreements.

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