- Term Loan CMA vs Working Capital CMA
- Fixed Asset Schedule — The Foundation
- Depreciation — Companies Act Method
- EMI Schedule and Repayment Plan
- Capacity Utilisation and Revenue Projections
- DSCR — The Critical Number for Term Loans
- Moratorium Period — When to Request One
- Combined CC + TL Applications
- Prepare Term Loan CMA Online
Term Loan CMA vs Working Capital CMA
Many practitioners prepare the same type of CMA for both CC limits and term loans — but the emphasis is fundamentally different:
| Working Capital (CC) CMA | Term Loan CMA | |
|---|---|---|
| Bank's primary concern | Is MPBF adequate? Is the CC limit justified? | Can this business repay the EMI from profits? |
| Key metric | MPBF (Form V), Current Ratio | DSCR (year-wise across repayment period) |
| Form IV importance | Very high — drives MPBF | Moderate — supports overall picture |
| Fixed asset schedule | Moderate — affects depreciation and balance sheet | Very high — asset being financed is the security |
| Repayment schedule | Not required | Mandatory — EMI schedule for entire tenure |
| Years of projection needed | 2–3 years typical | Entire repayment period (5–10 years for machinery) |
Fixed Asset Schedule — The Foundation
For a term loan, the asset being purchased is typically the primary security. The bank needs to see:
- Description of asset — Machine name, model, specifications
- Cost of asset — Supplier quotation or purchase order
- Installation and commissioning cost — Civil works, erection, trial runs
- Useful life — Per Companies Act Schedule II (determines depreciation period)
- Supplier details — Name, location, whether indigenous or imported
- Security details — Whether asset will be hypothecated to the bank
Fixed Asset Schedule in CMA Form III
In the Balance Sheet projections, fixed assets appear as:
= Opening GFA + Additions in the year (capex)
Accumulated Depreciation
= Opening Accum. Dep. + Current year depreciation
Net Block (WDV) = GFA − Accumulated Depreciation
The capex plan drives GFA additions. The timing matters — an asset installed in April (start of FY) gets full year depreciation; one installed in February gets only 2/12 months.
Depreciation — Companies Act Method
Use Companies Act 2013, Schedule II depreciation rates — not the Income Tax Act rates. The CMA is a management tool for bank appraisal, not a tax computation document.
| Asset Category | Useful Life (Companies Act) | Approx. SLM Rate |
|---|---|---|
| Plant & Machinery (general) | 15 years | 6.67% p.a. |
| Heavy machinery (steel, mining) | 20–25 years | 4.0–5.0% |
| Electrical installations | 10 years | 10.0% |
| Computers & servers | 3 years | 33.33% |
| Office equipment | 5 years | 20.0% |
| Factory building | 30 years | 3.33% |
| Vehicles | 8 years | 12.5% |
Most CMA reports use the Straight Line Method (SLM) for projected depreciation as it is easier to compute and more conservative (higher early-year depreciation than WDV method). Check what basis is used in historical audited accounts and be consistent.
EMI Schedule and Repayment Plan
The repayment schedule is the backbone of a term loan CMA. It determines:
- Annual principal repayment (denominator in DSCR)
- Annual TL interest charge (in both numerator and denominator of DSCR)
- TL outstanding balance in Form III Balance Sheet for each year
Types of Repayment Structures
| Structure | How It Works | Best For |
|---|---|---|
| Equal Monthly Instalments (EMI) | Fixed EMI (principal + interest combined). Interest component reduces over time. | Machinery, equipment — predictable cash flows |
| Equated Annual Instalments | Fixed annual repayment. Annual interest reduces as outstanding reduces. | CMA presentations — easier to model year-wise |
| Step-Up Repayment | Lower EMI in early years, higher later. Matches revenue ramp-up. | New projects, start-ups |
| Bullet Repayment | Only interest paid during tenure; principal repaid at end. | Short-term bridge loans, rarely for CMA |
EMI Calculation (Reducing Balance)
Where: P = Principal, r = monthly rate = annual rate ÷ 12
n = number of monthly instalments
For CMA purposes, convert monthly EMI to annual repayment (Principal × 12 months) and show year-wise interest declining as outstanding principal reduces.
Capacity Utilisation and Revenue Projections
The entire justification for a term loan (and the resulting DSCR) rests on the revenue projections — and for manufacturing, revenue projections must be tied to production capacity.
Banks will ask: "If you're buying a machine with capacity of 10,000 units/month, why are your Year 1 projections showing 8,000 units/month utilisation?" The answer needs to be in the CMA narrative or assumptions sheet.
Capacity Utilisation Ramp-Up (Typical)
| Year | Typical Capacity Utilisation | Why |
|---|---|---|
| Year 1 (first full year) | 50–60% | Commissioning, market development, workforce training |
| Year 2 | 65–75% | Market established, production stabilising |
| Year 3+ | 75–85% | Full operational run rate |
| Beyond Year 5 | 80–90% | Mature operation (leaving buffer for maintenance) |
Never project 100% capacity utilisation — banks will immediately flag it as unrealistic. A 15–20% buffer for downtime, maintenance, and market fluctuations is industry-accepted.
DSCR — The Critical Number for Term Loans
For term loan CMA, DSCR must be computed for every single repayment year — not just the first few. The bank wants to see sustained repayment capacity across the entire loan tenure.
Common pattern in manufacturing term loans: DSCR improves year-on-year as revenue grows and outstanding TL principal (and thus interest) reduces:
| Year | Typical DSCR Pattern | Driver |
|---|---|---|
| Year 1 (post-moratorium) | 1.35–1.55 | Revenue ramp-up, higher interest (full outstanding) |
| Year 2–3 | 1.55–1.80 | Revenue growing, interest reducing |
| Year 4–5 | 1.80–2.20 | Mature revenue, significantly lower outstanding |
If Year 1 DSCR is dangerously low (<1.25), consider requesting a moratorium — see the next section.
Moratorium Period — When to Request One
A moratorium is a grace period (typically 6–24 months) during which only interest is paid on the term loan — no principal repayment. It is appropriate when:
- The asset is still being installed or commissioned during Year 1
- The business needs time to reach sufficient revenue before servicing principal
- The project has a defined gestation period (construction, crop cycles, hospitality)
In the CMA, show the moratorium period clearly in the EMI schedule — "Moratorium: April 20XX to March 20XX — Interest only." Then show principal repayments starting from the post-moratorium year. DSCR in moratorium years will be higher (no principal in denominator) — which helps the overall picture.
Combined CC + TL Applications
Most manufacturing term loan applications also include a simultaneous CC limit request (for working capital). Preparing a combined CMA for both:
- Form V covers CC limit MPBF calculation
- DSCR schedule covers TL repayment capacity
- Both use the same Form II (P&L) and Form III (Balance Sheet)
- Interest on TL and interest on WC are kept separate throughout
Banks sanction CC and TL in a single credit approval for combined applications — saving the borrower time and reducing the documentation burden compared to two separate applications.
Generate Term Loan CMA with EMI Schedule Free
The JS & Co CMA Tool handles term loan schedules, depreciation, DSCR for all repayment years, and combined CC+TL CMA reports — all from a single input form.
Try Free Now →Prepare Term Loan CMA Online
The JS & Co CMA Data Tool is specifically designed to handle term loan CMA requirements:
- Enter the loan amount, interest rate, tenure, and moratorium — the tool builds the full repayment schedule
- Fixed asset additions automatically flow to depreciation and net block in Form III
- DSCR computed for every repayment year with ≥1.5 threshold check
- Separate tracking of TL interest and WC interest across all forms
- 20+ industry profiles — manufacturing, food processing, engineering, chemicals, steel, and more
- Capacity-based revenue projection support
Pro access unlocks the full report for bank submission. See pricing →