CMA Report

What Is a CMA Report?

A CMA report is a set of financial statements and analyses prepared in the Credit Monitoring Arrangement format that banks use to assess working capital and term loan proposals. CMA here refers to Credit Monitoring Arrangement and not to the Cost and Management Accountant qualification. The report presents a business's past performance, current position and projected performance in a standardised way so that the bank can assess the loan requirement and repayment capacity.

The CMA format arose from RBI committees on working capital finance. Banks are no longer required to follow a single prescribed method of assessing working capital, but many banks and financial institutions continue to ask for CMA data in a standard form, particularly for cash credit, overdraft and term loan proposals.

A CMA report typically includes particulars of existing and proposed bank limits, an operating statement, an analysis of the balance sheet, a comparative statement of current assets and current liabilities, computation of maximum permissible bank finance where used, and a fund flow statement. It draws on audited financials and projections and uses ratios such as current ratio, debt-equity and DSCR.

Who Needs a CMA Report?

• Businesses applying for working capital limits such as cash credit or overdraft
• Companies and firms seeking enhancement or renewal of existing limits
• Borrowers applying for term loans with a working capital component
• MSMEs and traders approaching banks for the first time
• Manufacturing and trading businesses whose bank asks for CMA data
• Borrowers moving from one bank to another
• Promoters preparing a project loan proposal

When Is a CMA Report Required?

There is no law that requires every borrower to submit a CMA report, but banks commonly ask for it when:

• A new working capital limit is applied for
• Existing limits are renewed or enhanced
• A term loan proposal is evaluated, along with the project report
• The loan amount is above a threshold set by the bank
• The bank wants projected figures for the coming years
• A takeover of the account from another bank is proposed
• The bank's credit policy requires CMA data for the borrower's segment

What Our CMA Report Service Includes

• Understanding the business, existing facilities and the bank's requirements
• Collecting past audited financials and provisional figures
• Particulars of existing and proposed limits
• Operating statement for past, current and projected years
• Analysis of balance sheet and classification of items
• Comparative statement of current assets and current liabilities
• Working capital requirement and, where required, maximum permissible bank finance
• Fund flow statement
• Projections for the coming years with assumptions
• Key ratios: current ratio, debt-equity, TOL/TNW and DSCR
• Notes on assumptions and variance explanations
• Consistency check with the project report or loan proposal

Legal and Practical Considerations

Bank format. Forms and requirements differ among banks. The report should be prepared in the format the lender specifies, and the numbers should match the audited financials.

Accuracy. The statements are submitted to a lender and relied on in credit decisions. They must be consistent with the books of accounts and accurate. Misrepresentation to a lender can have serious consequences.

Projections. Projected sales, margins and holding levels for inventory and receivables drive the working capital assessment. They should be reasonable relative to past performance and supported by orders, capacity and market conditions.

Audited financials. Banks usually require audited or certified financials. Companies have statutory audit and filing obligations under the Companies Act, 2013, and tax audit may apply for certain businesses under income tax law.

Bank discretion. The bank assesses limits using its own policy, and the limit sanctioned may differ from the requirement shown in the report.

Common Mistakes in CMA Reports

• Numbers that do not tally with audited financials
• Unrealistic growth in projected sales without support
• Inventory and receivable holding periods that conflict with past figures
• Classification errors between current and non-current items
• Ignoring unsecured loans and related-party balances
• Not explaining major variances
• Using a format different from the one the bank requires
• Projections not matched to the project report

Professional Fees, Government Fees and Timeline

Preparing the report carries no government fee. Bank processing fees, stamp duty and charge registration are separate and vary by lender. Professional fees depend on the number of years of data, number of facilities, complexity of the business and urgency. A CMA report is typically ready in 3 to 7 working days after financials and information are received.

CMA Report vs CMA Data Preparation vs Bankable DPR

The CMA report is the analysis and statements in bank format. CMA data preparation is the data-gathering and forms side of the exercise offered in the funding advisory group. A bankable DPR is the full project report for term loans. Related services include Bankable DPR, Financial Projections and Working Capital Finance.

Need Professional Assistance With a CMA Report?

An accurate, well-supported CMA report helps the bank understand your requirement quickly. The Legal Bank can help you prepare it in the required format. We prepare analysis and documentation; the decision to sanction a loan rests with the lender concerned. Share your requirement to discuss the next steps.