The seven statements
| Statement | What it establishes |
|---|---|
| Existing and proposed limits | What facilities are in place and what is being sought |
| Operating statement | Past and projected P&L, usually two years actual plus projections |
| Analysis of balance sheet | Assets and liabilities in the bank's classification |
| Comparative current assets and liabilities | The basis for working capital assessment |
| MPBF calculation | The maximum the bank may lend against the working capital gap |
| Fund flow statement | How funds moved between years |
| Ratio analysis | Current ratio, TOL/TNW, DSCR and turnover ratios |
How MPBF works
Maximum permissible bank finance starts from the working capital gap — current assets less current liabilities other than bank borrowing. The borrower is expected to fund a margin of that gap from long-term sources; the bank funds the remainder. Two methods are in common use, and the second is stricter because it requires the borrower to fund a share of total current assets rather than just a share of the gap.
- Method I — bank finances the working capital gap less 25% of the gap, contributed by the borrower.
- Method II — borrower contributes 25% of total current assets, and the bank finances the balance of the gap.
- Which method applies depends on the limit size and the bank's own policy.
When a bank asks for CMA data
Generally once the working capital limit crosses the threshold at which the simplified turnover method stops applying, and for most term loans above that level. Thresholds differ between banks, so confirm with the branch rather than assuming. Existing borrowers are usually asked for fresh CMA data at each annual renewal, not only at sanction.
Where preparation goes wrong
- Projected holding levels that contradict the operating cycle implied by the operating statement.
- Current assets classified one way in the balance sheet analysis and another way in the comparative statement.
- Ratios computed from an earlier version of the figures than the statements show.
- A revision carried into one statement but not the other six — by far the most common failure.
A practical sequence
- Start from audited actuals for the past years; do not re-key them from the client's summary.
- Fix the operating statement projections first — everything else depends on them.
- Derive holding periods from the client's actual trade cycle, not from a template.
- Build the comparative current assets and liabilities statement from those holding periods.
- Compute MPBF from that statement, not from a separate working.
- Generate the ratios last, from the final figures.
- Re-run the whole chain after any revision.