CMA Data Report: A significant document used to avail bank loan
As businesses require huge rolling of funds in form of fixed capital expenditure or working capital requirements, to run the business operations smoothly, organizations need to raise funds from financial institutions, credit rating agencies, or banks. These financial organizations provide loans on a short, medium, and long-term basis along with their charge as interests.
One can avail of bank loans by submitting a Credit Monitoring Assessment data report. It is a fundamental document to be shown to financial institutions or banks to exhibit your past financial and present financial position and future financial planning. Thus, it is an evaluation of the past as well as present performances of the businesses to ensure its economic stability, liquidity, and financial stability of the borrowing company.
CMA report has an inclusion of several financial ratios such as current ratio, liquidity ratio, quick ratio; profitability ratio as gross profit ratio, net profit ratio, net worth ratio and so on which helps the financial; analysts and bankers in auditing the financial viability of the businesses.
As per Reserve Bank of India guidelines, a company or the borrower need to present a detailed CMA report to banks and financial institutions for the following types of business loans:-
- Term loan
A loan borrowed for more than 5 years is referred to as a term loan. It is used to make a huge capital expenditure such as buying a fixed asset.
- Working capital loan
A loan availed for a year is known as a working capital loan. It is used to make daily operational and routine activities of the business.
- Bank guarantee
It is a guarantee granted by a bank to a third party that in case the business fails to make payment while entering into a big project; the bank will pay on its behalf. This is known as a bank guarantee.
- Mortgage loan
In this type of loan, the business property is used as a collateral asset for the loan sanctioned. If the business fails to fulfill its obligations, banks can sell the business property to avail of its funds.
What kind of reports is covered in CMA REPORT?
- Report on Current limits and proposed limits: This preliminary report contains details about the borrower, existing limits, and how the credit has been utilized. It also includes the proposed credit limit by the borrower.
- Operating statement: This statement contains a detailed report of Current and Projected Sales, Profit and Loss, income, expenses, and the proposed profit numbers in the next three years.
- Cash and Fund Flow Statement: This statement reflects the position of the funds of the borrower. This statement’s ultimate goal is to analyze the fund flow of the borrower for a given period.
- Balance Sheet Analysis: This statement contains the financial analysis of the current and projected years of the borrower. It provides a clear insight into the applicant’s existing and projected assets, liabilities, and financial position.
- Comparative statement of Current Assets and Current Liabilities: This statement includes a detailed report on the borrower’s current assets and liabilities. It helps lenders understand the borrower’s capacity better to meet the operational costs for the project.
- Calculation of Maximum Permissible Bank Finance (MPBF): This statement contains detailed calculations about Maximum Permissible Bank Finance. MPFB reflects the amount of credit a borrower can apply for based on the previous records.
- Ratio analysis: This statement consists of critical financial ratios that can help lenders to analyze business performance. It includes the Current Ratio, Net Profit Ratio, Stock Turnover Ratio, net worth and liabilities; DP limit, Asset turnover ratio, Working Capital Turnover, and Deb-Equity turnover, etc.
Other few considerations to note while providing a CMA report:
- No data should be cooked, should be transparent enough.
- The assumptions made should be realistic.
- The future losses and liabilities should be provided.
- To attach a detailed profit and loss account and balance sheet schedule.
- The necessary ratios should be calculated and attached to the report.
By submitting the CMA data report along with the right ratios and nicely presented financial statements, the chances of receiving a loan from the bank or financial institution increase. This is the benefit of presenting the CMA report.
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