And the day came when the risk to remain tight in a bud was more painful than the risk it took to blossom”, is a famous quote by author Anais Nin, which in a practical sense explains why it is important for a business to move forward constantly. Thus, every business be it on a large or small scale needs funding to enlarge in the form of plants, machinery, equipment, meeting working capital requirements, etc. For fulfilling this purpose, generally funding are of two types i.e. Equity funding & Debt funding. While debt financing is when capital is acquired through the borrowing of funds to be repaid at a later date, equity financing is raising capital by selling stocks to investors. While each method of funding comes with its fair share of pros &cons, this article mainly focuses on raising funds through banks &non -banking financing companies through debt financing.

Debt financing is a simpler &reliable method of funding for businesses because it allows a business to leverage a small amount of money into a much larger sum enabling that otherwise might be possible. Also where equity financing contains a large amount of time comparatively, complex paperwork, disclosures& legal arrangement whereas borrowing from a lender bank or NBFCs and modern-day fintech lending platforms take pride in their ability to disburse a loan within a day.

Is it that easier? Yes, it is, if you take care of some things before and during the process, for example, if you plan to build a plant in coming two years and feel you would probably need a bank loan for that you need to follow some rules for that and it will be as simple as that..!


Basically, when a loan applicant comes to a lending institution, banks or NBFC’s want to ensure that they are lending funds in safe hands i.e. financial health of the company, credit history, timely repayment, etc. Thus they generally ask for a set of additional documents & Credit Monitoring Arrangement data reports. The banks rely very much on this report and carefully evaluate CMA data eligibility of funding.

2.    What is CMA?

 So what is CMA? The Credit Monitoring Arrangement data report or commonly known as the CMA report is an analytical report of the current and projected financial statements of a loan application by the banker. For a person dealing in financial operations of an enterprise, it is of utmost importance as it presents a systematic analysis of the financial operations and working management aspects of the borrower i.e. the way he manages his funds, application of the funds, business probabilities, etc. come under this, the sole object is to ensure that the funds have been managed in an efficient way till now by the enterprise of the loan applicant.

The concept of CMA came into being in 1975 as a result of the recommendations of the guidelines given by the Chore Committee & Tandon group in 1974, which were issued for making betterment in bank credit in banking aspects by the Reserve Bank of India. Inducted into the system in 1988, the CMA system aimed to prevent delays in loan approvals & loan disbursements which earlier required RBI’s approval.

Through the CMA report, banks evaluate the eligibility of funding borrowers based on the careful evaluation of the CMA data, as it allows bankers & financial analysts to take the financial pulse of the undertaking. For this reason, companies are required to submit CMA data while getting loans from the bank every year for business loans like short term or long term loans, project loans& even for meeting working capital requirements for day-to-day business. As per RBI guidelines, banks should ask for CMA data even for smaller amounts of loans comprising of amounts between (4-6) lakhs.


Typically, there are seven statements that together constitute a CMA report which helps bankers to evaluate the financial aspects of a Company

1.    EXISTING & PROPOSED LOAN LIMITS: This is the first constituent of a CMA report, through which the banker wants to know about the present fund& non-fund based credit limits of the borrower along with their usage limits and their credit history. Also, other details like present fund limits along with proposed limits are generally required to be mentioned in this statement. It is always advised that the loan applicant should have a clean credit history and the proposed amount should be in conformity with the fund limits.

2.    OPERATING STATEMENT: Secondly, every banker requires the borrower enterprise to present a profit& loss a/c statement which contains details like current sales, direct& indirect expenses, profit before& after-tax, projection of sales, expenses, profit projection in coming 3to 5 years based on the capability of borrower’s business. In other words, this statement is a scientific analysis of the current & projected financial growth capacity of the borrower.

3.    BALANCE SHEET ANALYSIS: Analysis of the balance sheet is the third statement in the CMA report, which gives the indication that the company is financially sound. The statement gives a detailed analysis of current& non-current assets and current& non-current liabilities, bank & cash position of the borrower’s organization. In other words, the analysis of the balance sheet gives the net worth position of the borrower.

Generally, bankers ask for at least two years of audited balance sheets and upcoming three years projected balance sheets in practice.

4.    CHANGES IN WORKING CAPITAL: This is the fourth statement that provides the comparative analysis of the movement of current assets& liabilities. This analysis gives an idea regarding the ability of the loan applicant to meet its daily working capital requirements. Also, indications regarding the actual working capital requirements along with future projected cycle growth are made.

5.    CALCULATION OF MPBF: The term MPBF stands for Maximum Permissible Bank Finance. It helps to know the difference between the working capital& permissible finance in the borrower’s enterprise i.e. capacity of the borrower to borrow money.

There are generally two ways to calculate MPBF:

•    In the first method, the permissible limit of funding shall be 75% of the networking capital gap which means current assets less current liabilities.

•    The second method shall allow 75% of the current assets less current liabilities.

Thus, the MPBF limit is only the cash credit component of the borrower which is generally known as the drawing limit(DP), this is the reason why this statement forms the basis of the CMA  report.

6.    FUND FLOW STATEMENT: In a CMA report, generally a fund flow statement of the borrower enterprise is given to evaluate if there are sufficient funds available with the company or if the company is utilizing its funds properly or not.

7.    RATIO ANALYSIS: Last but not the least, analysis of operational and financial ratios gives an overall summary of the company’s growth & loan repayment capacity. Some of the important ratios like Net worth ratios, quick ratio, turnover ratios, debt-equity ratio, etc help the bankers to make the decision regarding  approval of funds


A CMA report helps to compile with the help of financial ratios& metrics to find out the financial health of the enterprise as it is unworthy of an of a bank to provide funds to such companies who are already sick or where chances of survival are few. This is the reason why banks ask companies to submit a detailed CMA report, as this document clearly marks out the flow of & application of funds in a concerned business

The importance of having a CMA report lies in the fact having a CMA report is key to obtain a bank loan. In fact, with the coming of the requirement of submitting CMA data, banks usually sanction loans to large borrowers after a detailed analysis of their business past performances.


Nowadays there are a number of sites listed on the internet that study for your cost management analysis data & project report test. They also help you to make a CMA report with a minimal amount of charges some of the sites being estartindia.com, IndiaFilings.com& taxfilling.com & so on.


Ordinarily, a CMA report helps to analyze the past & proposed flow of funds and viability of the project of the borrower. Therefore, someone with a deep knowledge of finance & vast experience should be trusted to study & make a CMA report. As provided earlier, a professionally made CMA data report could really help to make the process of approval of a loan simple, quick& hassle-free.


eStartIndia Team

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