Points to be kept in mind for making Bankable Loan Proposal: By CA Sweta Makwana
Author
CA. Sweta Makwana
www.caswetamakwana.com
Few important points to be kept in mind for making Loan Proposal Bankable and should be given importance while making CMA Report for funding.
Current Ratio
Debt equity ratio
Debt service coverage ratio
Interest service coverage ratio
Total of outside liabilities to tangible net worth
Few ratios with respect to sales that are important
Sales to borrowed funds
Sales to fixed assets
Sales to current assets
Sales to total assets
Also, bifurcation of balance sheet items is correctly done in the CMA Report format as wrong amount can affect the ratio.
Few benchmarks. However, they wary bank to bank and industry to industry
Current Ratio – Benchmark Current Ratio is 1.33 and ordinarily not below 1.17
Debt Service Coverage Ratio (DSCR): Benchmark for average DSCR is 1.50 and ordinarily not below 1.40.
Interest Service Coverage Ratio (ISCR): Benchmark ISCR is 2.50 and ordinarily not below 2.00.
TOL / TNW: Benchmark is 4.00 and ordinarily not above 5.00.
Also, ensure that the loan calculator is used to arrive at the interest amount to be reported for the projections. Quasi equity amount should also be properly reported in the CMA Report.
Comparative positions are also checked. The bullet points mentioned below are compared with the previous year figures to know to increase or decrease.
| ·Fixed Assets |
| ·Term Liabilities |
| ·Net Fixed Assets |
| ·Current Assets |
| · Current Liab. (excld. Bank Fin) |
| ·Bank Finance |
| ·Net Current Assets |
| · Net Other Current Assets |
| ·Net Non Current Assets |
| ·Tangible Net Worth |
| ·Represented by: |
| ·Own Funds |
| · Quasi Equity/Unsecured Loans |
| · % of own funds to Networth |
Always ensure the Operating profit and Net profit are increasing year on year basis except when the industry is going through a downfall or there is any justified reason for the decrease in profits.
Return on Net worth is also an important ratio considered by Bank for sanction.
The content is merely for sharing knowledge. Author can be reached at sweta@caswetamakwana.com or 9819244185.
A Practicing Chartered Accountant with over 4 years of rich experience in Company Law, Audits, Accounts & taxation. She is a writer at her own blog https://insights.buddingbusiness.com/. She is keen in streamlining business accounts of the Company and provide Start-up consultancy and making CMA Reports for Loans.
