What is a CMA report?
CMA report also knownalso is known as Credit Monitoring Arrangement report is the report showing the projected performance and the past performance of a business in financial terms. It is compiled with all the required financial ratios and metrics to help Financial Analysts and Bankers to ascertain the financial health of a business.
Most of the Banking and Financial Institution request the applicant (Business Loan Applicant) to prepare a Credit Monitoring Arrangement report (CMA report) in order to understand the flow and application of funds in a business. A CMA report which is professionally prepared can enhance the chances of obtaining a bank loan.
Under the Credit Monitoring Arrangement (CMA), banks have been permitted for sanctioning credit proposals (of large borrowers) after detailed analysis of the past performance. There is another requirement for the Banks. They need to submit the large credit proposals to the Reserve Bank of India for post-sanction scrutiny. These proposals involve working capital limits of Rupees 500 lakhs (5 crores) and above and/or term loan in excess of Rupees 200 lakhs (2 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.
Other documents/Information required to prepare CMA
- ✓ Previous 2 years Audited Financials
- ✓ Latest Sanction letter (in case of renewal)
- ✓ Provisional Financial for the current year
- ✓ Term Loan Repayment Schedule,( if any)
- ✓ Details of proposed enhancement (if any) along with the terms and conditions
Frequently Asked 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.
