According to section 4 of law No. 2019//021 of 24 December 2019 to lay down some rules governing credit activities in the banking and Micro-Finance sectors in Cameroon, all legal persons applying for a loan shall be required to provide to the credit provider, information required to assess their repayment capacity.
Debt capacity represents the maximum volume of leverage a business can strategically assume and successfully service in strict compliance with its borrowing covenants.
A debt schedule sets out all of the debt obligations of a business in a structured format organized according to maturity dates. It is typically employed by businesses as a tool for constructing a comprehensive cash flow analysis. Types of debts listed in a debts schedule include loans, leases, bonds, and debentures.
Primary Assessment Methods of Corporate Debt Capacity
Lenders typically categorize corporate debt capacity into two distinct frameworks:
A. Cash-Flow-Based Capacity
Application: This instrument is typically applied across standard commercial loans, structured term debt, and operational working capital lines.
Mechanism: Focuses on the stability of the cash generation of the entity.
One measure to evaluate debt capacity is EBITDA, or Earnings Before Interest, Tax, Depreciation, and Amortization.
B. Asset-Based Capacity
Application: This form of financing is utilized where the purpose of the loan is the acquisition of a significant asset, such as equipment or real property.
Mechanism: The credit limit is determined primarily by reference to the net realizable value of the company's accounts receivable, inventory, and equipment.
A legal person applying for a loan shall also be required to provide to the credit institution details of its financial position, in particular:
Balance sheets and profit and loss accounts for the last two years;
Balance sheets and projected profit and loss accounts for newly registered companies;
Monthly repayment instalments of current loans (mortgage, car loan, consumer credit, etc.);
Information on any income relating to investments (rents or financial income);
The rent amount including rental charges, for tenants;
Building maintenance expenses and property tax, for house owners;
The existence of revolving credits;
Various taxes and duties;
Insurance premiums, including an estimate of those that may be added, should the loan requested be granted;
Any other data that may inform the decision of the credit institution.
The credit institution may request any other document likely to inform its decision.