Money is the lifeblood of any business. It becomes especially important for a startup given its limited number of resources. The activity of lending money by any financial or non-financial institution is usually done to a borrower that is credit-worthy. Assessing the creditworthiness of the borrower is a challenge, and that is where the Credit Monitoring Arrangement (CMA) Data comes into play. CMA Data empowers lenders with critical information necessary to assess the feasibility of granting a loan and allowing scrutiny into the borrower’s financial health and repayment capacity. 

Components of CMA Data The most important components of the CMA Data for the loan evaluation process are: 

• Particulars of limits: The fund and non-fund based facilities and their limits are highlighted along with past transactions. 

• Financial Statements: This will include the Balance Sheet, Income Statement, and Cash Flow Statement which will give a fair idea about the financial position, cash flow patterns, and revenue-generating capacity of the borrower. Usually, the last audited financials are requested wherever available, and for interim periods, a provisional financial statement needs to be prepared. 

• Projected Financials: The audited financial statements or provisional financial statements provide the necessary historical data for analysis. However, the projected financials give an idea about the proposed use of funds, the future financial position, etc., of the enterprise to evaluate the effect of the borrowing on the enterprise. The financials contain details regarding current & non-current assets, current & non-current liabilities, fixed assets, cash & bank position, etc., of the borrower. The net worth of the borrower can be ascertained from the same. 

• Ratio Analysis: A combination of solvency, profitability, and liquidity ratios are used to gauge the performance of the entity relative to industry benchmarks. 

• Fund Flow Statement: The movement and end-use of funds are illuminated in the Fund Flow Statement to verify the fund management practices of the entity. 

• Working Capital Assessment: The lenders finally determine the adequacy of the resources of the borrower to sustain the operations of the business and be capable of repaying the loan through an assessment of the working capital. The working capital, which is current assets less current liabilities, will also be used by Banks to calculate Maximum Permissible Bank Finance (MPBF), which basically acts as the Drawing Power limit that can be provided. 

Significance of CMA Data The CMA Data should be as accurate as possible since it will be used to provide insights relied on by the lenders. Inaccurate data might lead to unnecessary delays in the loan approval process. The CMA Data also allows lenders to structure the terms and conditions, keeping in mind the risk profile and risk assessment of the borrower. CMA Data is used as a universal requirement irrespective of the nature of borrowing. While businesses can prepare such data in-house, it is always better to seek professional help given the significance of the data. BCL India is one of the best accounting firms in Bangalore, and we would be happy to help you out in such a case. 

Conclusion  

The complex loan approval process in modern times revolves around the CMA Data. The more accuracy, clarity, and completeness of such data play a vital role in determining the eligibility of the borrower. The granularity of information that CMA Data offers empowers lenders to make informed decisions that factor in not only the borrower’s requirements but also the lender’s risk appetite. Thus, the next time a business needs any sort of funding requirement, we can collate and prepare the above data for the quick disbursal of funds without any hassle.