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LoansJagat Team

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27 Jun 2025

How to Prepare for Your First Business Loan Audit?

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‘Aarav, one night before the audit: "Excel khol diya, ab bhagwan ji aap kar lo."’

 

He had applied for a ₹4 lakh personal loan to cover his sister’s wedding expenses. But to his surprise, the bank rejected his application because of his low eligibility. Here is what went wrong with the application:

 

Criteria Checked

Aarav’s Details

Bank’s Minimum Requirement

Monthly Income

₹28,000

₹25,000–₹30,000

Credit Score

672

700+

Current EMIs

₹9,000

Should be <50% of salary

Job Stability

10 months

Minimum 1 year preferred

 

‘Sab kuch bhawan par nahi chhodna hota!’ Understand the eligibility rules before applying for the personal loan. In this blog, we’ll discuss the process step by step so that you can improve your chances of approval.

 

Step 1: Collect & Organise Core Financial Documents

 

Meena, a graphic designer in Hyderabad, is preparing for her ₹3 lakh personal loan audit. She:

 

Downloaded business and personal bank statements for the past 12 months.

Collected her last 2 years of P&L, balance sheet, and cash flow statements from her accountant.

Pulled the loan agreement, interest schedule, and EMI info.

Retrieved her past 2 years of tax returns and GST filings.

 

She then organised everything into clearly labelled digital folders on her system. The table shows a quick summary of the documents she prepared.

 

Document Type

Period

Bank Statements

12 months

P&L, Balance Sheet, Cash Flow

2 years

Loan Agreement & EMI Schedule

N/A

Tax Returns + GST Filings

2 years

 

Step 2: Reconcile, Review & Pre-Audit Records

 

After gathering all documents, Meena moves to the next phase: ensuring the numbers add up perfectly.

She reconciled bank statements for both her personal and business accounts against her bookkeeping records over a 12-month period.

She discovered 24 discrepancies, like:

₹1,200 in unrecorded cheque withdrawals

₹840 in bank charges not captured in her books

Then she made 27 adjusting journal entries, including clearing those 24 discrepancies and adding 3 missed entries (late payment receipts).

Finally, she completed a self-audit checklist covering reconciliation accuracy, documentation presence, and sign-off.

Task

Details

Reconcile the bank vs the cash book

Covering Dec ’23 – Nov ’24 (12 months)

Identify discrepancies

Cheques, charges, timing

Adjust internal records

Journal entries

Document & explain corrections

Notes attached to adjustments

Self-audit using a checklist

10-point pre-audit checklist

 

Step 3: Evaluate Business Cash Flow and EMI Capacity

 

Once her financials were organised, Meena needed to prove she could repay the ₹3 lakh loan. Her lender expected a stable cash flow that would support monthly EMIs. She calculated her business’s average monthly surplus and matched it against the proposed EMI to avoid penalties and late fees.

 

Particulars

Amount / Value

Average Monthly Business Income

₹1,10,000 (Based on the last 6 months)

Average Monthly Business Expenses

₹75,000

Net Monthly Surplus

₹35,000

Proposed EMI for ₹3 lakh loan @ 12%

₹9,964

Total Interest

₹3,58,715

Total Amount Repaid

₹3,58,715

EMI-to-Income Ratio

9%

 

Step 4: Review Credit Score & Existing Loan Exposure

 

Although the loan is for business purposes, the bank also assesses Meena’s personal creditworthiness. So, Meena reviewed her credit report, listed her current liabilities, checked utilisation levels, and ensured all past-due accounts were cleared. 

 

She didn’t want anything on her credit profile that would trigger red flags during the lender’s audit.

 

Credit Parameter

Details / Value

Audit-Relevant Notes

CIBIL Score

732

Above typical lender cutoff (700); reflects a stable history

Active Personal Loans

1

Balance ₹75,000; 7 months left

Existing Loan EMI

₹3,800/month

Never delayed; reflects responsible repayment

Credit Cards Owned

2

SBI Cashback & ICICI Coral

Total Credit Limit (across cards)

₹1,60,000

Moderate combined credit line

Current Card Outstanding

₹34,800

Paid in full last 3 cycles

Credit Utilisation Ratio

22%

Healthy usage (below 30% limit)

Overdue or Settled Accounts

0

No defaults, write-offs, or settlements

Credit Report Errors Found

1 outdated closed loan showing active

Disputed and corrected via the CIBIL portal

Total Monthly Debt Obligation (EMIs + CC min.)

₹4,600

₹3,800 EMI + ₹800 minimum card due

Debt-to-Income Ratio (Total ÷ ₹1,10,000)

4.2%

Far below the lender max threshold (30–40%)

 

Conclusion

 

Preparing for your first business loan audit isn’t like an exam. It’s the aftermath. You need different documents to get into your dream college; similarly, you need certain documents to prove you can repay the loan. You also need a good personal credit history.

 

After organising the documents, reconcile your records to evaluate EMI capacity and credit health. Each step increases your approval chances. Stay audit-ready, and you’ll turn loan anxiety into financial confidence and better borrowing outcomes.

 

Frequently Asked Questions

 

1. How to prepare for your first-time audit?

Compile and understand documentation (policies, financials, records), map processes, perform internal reviews, train staff to answer confidently, and ensure transparency. Early preparation builds auditor trust.

 

2. What are the 3 C’s of auditing?

In remote and internal audits, the three critical elements are: Computer use (technology reliance), Collaboration (team engagement), and Corroboration (evidence validation to support audit findings).

 

3. What should you avoid saying during an audit?

Don’t overuse words like “it seems”, “always,” and “never”. Refrain from assigning blame, and don’t offer documents or opinions they have not asked for. Stay factual, specific, and neutral.

 

4. What are the five C’s of internal auditing?

The five C’s: Criteria (audit standards), Condition (observed issues), Cause (root reasons), Consequence (impact), and Corrective Action (remediation plans). 

 

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?

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