CMS vs CMA
Prior to the introduction of CMA, a practice of Credit Authorization scheme was in place. Under this practice, an authorization from RBI (Reserve Bank of India) was mandatory for credit above the specified limit fixed by RBI.
This was done to ensure that the big players don’t eat up the limited capital available for the credit. But, this process was cumbersome, time-consuming, and inefficient. This inefficiency prompted the Government to introduce the system of the CMA report.
CMA has simplified the process as the financial institutions are given authority to sanction the credit after self-assessment of the CMA report submitted by the client. Although now the process is much simplified, mandatory scrutiny by the RBI after the approval is required if the amount of term loan is above INR Two crores.
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 is a long-term loan or finance with limited or zero recourse financial solutions. Such project loans or project finance are offered primarily against the project’s repayments and secondarily on rights, assets, and interest.
To apply for this type of loan before any financial institution, it is mandatory to submit a detailed CMA
These loans can be availed for industrial projects, public service projects of long-term infrastructure development.
Term loan
As the name suggests, these types of loans with specific amounts are offered to the borrowers for a particular repayment schedule. The interest rate for such loans can be either floating or fixed.
These loans are an excellent choice for small businesses with positive financial performance. Companies can utilize these loans for infrastructure development or equipment acquisition.
Working capital loan
Businesses utilize the capital from these loans to manage their day to day expenses. These loans are availed to fulfill short term business requirements. CMA is mandatory for these types of loans too.
Mortgage Loan
Mortgage loans are the loans that are taken against existing business properties. The business properties are pledged to raise funds for the business and are considered as a guarantee for the money borrowed from the financial institution.
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.
Steps to prepare a CMA report
- 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.
- 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.
- The credit-seeking enterprise has to prepare reports of existing loans, credits, repayment status, and any other liabilities it might have in any form.
- It will also need to submit all the financial reports, including Balance sheet, Audit Report, Financial Statements, and Profit and loss accounts.
- Calculating MPBF (Maximum Permissible Bank Finance) and preparation of changes in working capital along with ratio analysis.
- The applicant has to offer a justifiable explanation about how the funds will be utilized after availing of the credit.
- The applicant will have to prepare a detailed break-up of all the numbers mentioned in the CMA, along with supporting documents.
Benefits of a CMA Report
The basic benefits of CMA Report are:
- Scientific Analysis of Existing and Projected profit generating capacity.
- It analysis the Balance Sheet and portrays complete picture of the Financial Position of the Borrower.
- Helps in Generating Basic Key Ratios for business evaluation.
- Decides the credit worthiness of the borrower to meet the working capital requirements.
- It shows the Net Worth position of the borrower for the future projected years.
Content of CMA Report
Following are the seven statements necessary while preparing the CMA
- Report on Current limits and Proposed limitsThis 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 statementThis 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 StatementThis 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 AnalysisThis statement contains the financial analysis of 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 LiabilitiesThis 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 analysisThis statement consists of critical financial ratios that can help lenders to analyze the business performance. The statements in the statement include 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.
Services Offered by Us
Following are the services provided by us at the time of registration.
- Collection of Data as required
- Preparing 1st Draft of CMA
- Discussing and Editing 1st Draft
- CMA Report Prepared
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Frequently Asked Questions
FAQ
General Questions
CMA report also is known as Credit Monitoring Arrangement report is the report showing the projected performance and the past performance of a business in financial terms.
Credit Monitoring Arrangement, commonly known as CMA Data is the financial report used by lending institutions to appraise and analyse the financial position of a company before lending.
Under the present rules, the Reserve Bank of India has mandated all banks to prepare CMA for lending to large borrowers.
For engineering projects in general, the project management team comprising of a body of project managers and various department executives prepares the project report.
It will be drafted with the description of the scope of the project and analysis of various stakeholders and conditions.
It is a critical analysis of current & projected financial statements of a loan applicant by the banker.
CMA data is a systematic analysis of working capital management of a borrower and objective of this statement is to ensure the usage of long term and short term fund have been used for the given purpose.
Credit Monitoring helps you understand the your credit history, and protects your credit identity as well.
It helps you get your credit scores and reports which benefit you when trying to get loans or various kinds from mortgages to auto loans.
A credit monitoring service tracks changes in borrower behaviour to notify consumers of potential fraud as well as changes to their creditworthiness.