Few important points to be kept in mind for making Loan Proposal Bankable and should be given importance while making CMA Report for funding.

Whenever projections are made for the Company for any loan or any project report, the Company should always keep few ratios in mind.

CMA Report also known as Credit monitoring arrangement report is the report showing the financial performance of the Company and its projections for the upcoming years. Bankers analyze these numbers and few ratios based on which the loan is sanctioned.

Statements covered in the CMA Reports

  • Particulars of current and proposed limits
  • Operating statement
  • Analysis of balance sheet
  • Comparative statement of current assets and current liabilities
  • Calculation of Maximum Permissible Bank finance
  • Fund flow statement
  • Cash flow statement

Few other documents required for CMA

  • Audited financials
  • Previous sanction letters if any
  • Loan repayment schedule

Few important ratios for making the proposal bankable

  • Current Ratio
  • Debt equity ratio
  • Debt service coverage ratio
  • Interest service coverage ratio
  • Total of outside liabilities to tangible net worth

Few ratios with respect to sales that are important

  • Sales to borrowed funds
  • Sales to fixed assets
  • Sales to current assets
  • Sales to total assets

Also, bifurcation of balance sheet items is correctly done in the CMA Report format as wrong amount can affect the ratio.

Few benchmarks. However, they wary bank to bank and industry to industry

Current Ratio – Benchmark Current Ratio is 1.33 and ordinarily not below 1.17

Debt Service Coverage Ratio (DSCR): Benchmark for average DSCR is 1.50 and ordinarily not below 1.40.

Interest Service Coverage Ratio (ISCR): Benchmark ISCR is 2.50 and ordinarily not below 2.00.

TOL / TNW: Benchmark is 4.00 and ordinarily not above 5.00.

Also, ensure that the loan calculator is used to arrive at the interest amount to be reported for the projections. Quasi equity amount should also be properly reported in the CMA Report.

Comparative positions are also checked. The bullet points mentioned below are compared with the previous year figures to know to increase or decrease.

  • Fixed Assets
  • Term Liabilities
  • Net Fixed Assets
  • Current Assets
  • Current Liab. (excld. Bank Fin)
  • Bank Finance
  • Net Current Assets
  • Net Other Current Assets
  • Net Non Current Assets
  • Tangible Net Worth
  • Represented by:
  • Own Funds
  • Quasi Equity/Unsecured Loans
  • % of own funds to Networth

Always ensure the Operating profit and Net profit are increasing year on year basis except when the industry is going through a downfall or there is any justified reason for the decrease in profits.

Return on Net worth is also an important ratio considered by Bank for sanction.

*****

The content is merely for sharing knowledge. Author can be reached at [email protected] or 9819244185.

A Practicing Chartered Accountant with over 4 years of rich experience in Company Law, Audits, Accounts & taxation. She is a writer at her own blog https://insights.buddingbusiness.com/. She is keen in streamlining business accounts of the Company and provide Start-up consultancy and making CMA Reports for Loans.

Author Bio

Qualification: CA in Practice
Company: Co-founder of Budding Business & Makwana Sweta & Associates
Location: Mumbai, Maharashtra, India
Member Since: 20 Aug 2017 | Total Posts: 66
A Practicing Chartered Accountant with over 4 years of rich experience in Company Law, Audits, Accounts & taxation. She is a writer at her own blog https://insights.buddingbusiness.com/. She is keen in streamlining business accounts of the Company and provide Startup consultancy. View Full Profile

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