Credit Monitoring Arrangement Data
Credit Monitoring Analysis
The CMA report, often referred to as a Credit Monitoring Analysis or Arrangement report, is a document that details a company's financial past and present performance. It thoroughly examines the borrower's working capital management and ensures that funds are used for the desired business purposes. CMA data is required for project loans, working capital limits, overdraft facilities, and term loans in accordance with RBI requirements. On the basis of specific ratios generated using CMA data, banks assess the borrower's eligibility and interest rate for funding.
Different Types of Loans Requiring CMA Report
Currently, the rule by RBI mandates that all the financial institutions have to prepare a detailed CMA report when they lend money to big borrowers. This report is mandatory for the following types of Loans:
Project Loan
Project loans or project finance are long-term loans or forms of financing with little to no recourse. These project loans or project financing are typically provided secondly on rights, assets, and interest, with the project's repayments serving as the primary security. A thorough CMA must be submitted in order to apply for this type of loan with any financial institution. These loans can be used for long-term infrastructure development, public service initiatives, and industrial enterprises.
Term loan
As the name implies, these loans are supplied to the borrowers for a defined repayment plan and have a set amount. Such loans may have fixed or adjustable interest rates. These loans are a great option for small firms that have a stable cash flow. These loans can be used by businesses to finance the purchase of equipment or the construction of infrastructure.
Working capital loan
Businesses manage their daily expenses with the funds from these loans. These loans are made available to meet short-term business needs. CMA is required for these loans as well.
Mortgage Loan
Mortgage loans are those that are obtained against already-existing commercial real estate. As a guarantee for the money borrowed from the financial institution, the business properties are pledged in order to raise money for the enterprise.
How to prepare a CMA Report?
As per the RBI guidelines, the format for CMA is fixed. To prepare a CMA report, a detailed performance analysis of past years, the Business’s credit history, and other financial metrics are necessary.
Apply Now
Steps to prepare a CMA report
1
The applicant has to prepare the projection of all the assets as per their current valuation. The unrealistic assumptions are not entertained in the report.
2
The applicant has to disclose the estimates of the current and future financial expenses for the Business. These estimates will be taken into account before approving the credit or loan.
3
The credit-seeking enterprise has to prepare reports of existing loans, credits, repayment status, and any other liabilities it might have in any form.
4
It will also need to submit all the financial reports, including Balance sheet, Audit Report, Financial Statements, and Profit and loss accounts.
5
Calculating MPBF (Maximum Permissible Bank Finance) and preparation of changes in working capital along with ratio analysis.
6
The applicant has to offer a justifiable explanation about how the funds will be utilized after availing of the credit.
7
The applicant will have to prepare a detailed break-up of all the numbers mentioned in the CMA, along with supporting documents.
Content of CMA Report
It covers the following statements
Report on Current limits and Proposed limits
The first statement in the Credit Monitoring Arrangement (CMA) report states about the existing fund & non-fundbased credit limits, their usage limits and history. In addition to this, the statement also contains the proposed or applied limit of the borrower. This document is a basic document which is to be provided by the borrower to the banker.
Operating statement
This is the second statement which indicates the borrower’s business plan showing the Current Sales, profit before & after tax, sales projections, direct & indirect expenses, and profit position for 3 to 5 years. These requirements are case to case specific on the basis of the borrowers working capital request. This is a scientific analysis of existing & projected profit-generating capacity of the borrower.
Analysis of Balance sheet
This is the third statement in the CMA data, this statement contains an analysis of the current & projected financial years. It helps in providing a comprehensive analysis of current & non-current assets, current & non-current liabilities and cash & bank position of the borrower. This statement also specifies the net worth position of the borrower for the future projected years. As the name says, it is the analysis of the Balance sheet and gives a complete picture of the financial position of the borrower.
Cash and Fund Flow Statement
This is the fourth statement 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.
Comparative statement of Current Asset & Current liabilities
This is the fifth statement which provides the comparative analysis of the movement of the current assets & liabilities. Basically, this analysis helps to decide the capacity of the borrower to meet the working capital requirements and the actual working capital cycle for the projected period.
Calculation of Maximum Permissible Bank Finance (MPBF)
This is the six statement and a very important one. This includes a calculation which indicates the Maximum Permissible Bank Finance. It shows the borrower’s capacity to borrow money.
Ratio analysis
This is the last statement in Credit Monitoring Arrangement report (CMA report) which provides key financial ratios for the Financial Analysts and Bankers use. The basic key ratios are GP (Gross profit) ratio, Net profit ratio, Current ratio, Quick ratio, Stock turnover ratio, Net worth, the ratio of Net worth to Liabilities, DP limit, MPBF, Asset turnover, Current asset turnover, Working capital turnover, Fixed asset turnover, Debt-Equity ratio etc.
Benefits of CMA Report
The basic benefits of CMA Report are:
- Scientific evaluation of the ability to generate profits currently and in the future.
- Analyses the balance sheet and presents a thorough picture of the borrower's financial situation.
- Generates basic key ratios that are helpful for company evaluation.
- Determines the borrower's creditworthiness in light of the need for working cash.
- It displays the borrower's Net Worth status for the upcoming anticipated years.
PROJECT REPORT
In contrast to CMA Data, a project report contains not only financial analysis but also the following
- Company History and Promotor Background
- Analysis of Strengths and Weaknesses
- Need for Loan Funds and how Method of Optimum Utilization
- Current Operations and Market Positioning
- Opportunities and Expansion Plan of the Company