Dear friends, as we all know, India is one of the fastest growing economy of the world. To give pace to the economy, the main role is played by businesses. In current times, new ventures are starting vary rapidly and existing businesses are also changing their strategies to meet the need of hour. From last 2-3 years, due to high inflation rate, businesses require more funds to balance their working capital requirements and to take new loans to start new ventures. All funding requirements are either meet up by own funds or have to borrow from banking institutions like Banks/ NBFC Etc. While applying loan from banks they ask for Audited Balances Sheets, Projected Balance Sheet, CMA Data, Income Tax related documents etc.
On the basis of above documents, they decide your credit worthiness and sanction loans to eligible persons only. I have already written a blog with the title “What is CMA Data? How to prepare CMA Data for Bank Loan? The same can be assess from below link
https://taxguru.in/finance/cma-data-prepare-cma-data-bank-loan.html
In today’s article, we will discuss the key precautions that should be taken while preparing CMA Data for Bank Loan.
Be Realistic while predicting future Growth
While preparing CMA Data, we have to demonstrate our past, current and future performance. In many cases, it is observed that, persons prepare CMA Data which looks very hypothetical. It has no correlation with our past and current performance. We should be very clear about our growth estimates as per our Industry (Industry from which our business belongs) and economical conditions. For example, if an industry is going through recession phase and while preparing CMA Data, we predict a growth of 9%, which is not realistic. So, we should take care of this point.
Be Realistic about our Cost and Capital Expenditure
Many term loans are taken to finance a particular project, for example purchase of land and construction of hospital/ restaurant on that land. While projecting CMA Data for such kind of project, we should prepare CMA Data in such a way that it demonstrate nearby cost which we must have to incur to make project feasible for generating revenue. If our cost estimates are wrong then the project will not be completed within financed limit and getting more loans on that project becomes more tedious.
Do not become Overleveraged
This is the most important point; we should take care of it. While taking loan, our business health may be in good condition but due to sudden change in economy, maybe we come in such a situation that, our business goes into slowdown but we have to repay our installments on time. This point should be taken care while preparing CMA Data of cyclic business for example, if loan is taken to start a cooler business then we should take care that, this business exits for some month of the year. So, while preparing CMA Data, we should demonstrate healthy cash flow and current assets to repay our principal and interest liability on due date.
Timely Submission of CMA Data
After applying loan, we should provided all loan related data and CMA Report within specified time period. It gives good impression to the financer and helps in getting loans at best interest rate.
Ensure consistency in CMA Data and other documents
Here, we should ensure that our CMA Data is in consistent with our other documents. For example, in audited balance sheet, debtors are showing of value of Rs.1.5 Crore and in CMA Data, we projects debtors value of Rs.50 Crore, then it may become red flag for the financer.
Information about Collateral and Guarantees
While preparing CMA Data and submitting loan application/ other documents, we should highlight the collateral and guarantees which we are going to offer against this loan. This gives a peace to the financer about security of there lended amount and you will get best rate of interest on loan. In many cases, when we apply for high value loans, the persons ignores this point and not able to get the best deal both in case of loan sanctioned amount and rate of Interest.
Take Care of Some basic Ratio analysis
While preparing CMA Data, we should take care of basic ratios like Gross Profit Ratio, Net Profit Ratio, Debt-Service Coverage Ratio, Current Ratio, Debt-Equity Ratio, Debtors & Creditors turnover ratio. These ratios are like mirror of your business and CMA Data. If you prepare best CMA Data with worst ratios, it will not work and you will not be able to get loan.
Author’s Note: There are many other points that should be taken care while preparing CMA Data for Bank loan. Above is just a glimpse of a big picture. Above points must be taken care while preparing CMA Data for both high value and small value transactions. If above points are ignored then you will face issues in getting your loan approved. Further, each and every CMA Data is unique in its own way according to the funding requirement and nature of business, so no specified format or points can be given. It’s a customized report for each case.
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Disclaimer: This article is for the purpose of information and shall not be treated as solicitation in any manner and for any other purpose whatsoever. It shall not be used as legal opinion and not to be used for rendering any professional advice. The author will not be held responsible for any lose, if occur after using above information. Kindly consult your professionals before taking any action. This article is written on the basis of author’s personal experience and provision applicable as on date of writing of this article. Adequate attention has been given to avoid any clerical/arithmetical error, however; if it still persists kindly intimate us to avoid such error for the benefits of others readers. The Author “CA. Shiv Kumar Sharma” can be reached at mail –[email protected] and Mobile/WhatsApp–9911303737
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