Financing is crucial to business success. However, smart senior management of corporate understand that obtaining a loan isn’t enough. It’s also important to make timely repayments or have a positive credit score or build a relationship with the lender.

If you are a regular borrower, you know the world of funding is complex. With this article here, we want to give a corporate borrower, regular or new, an in-depth understanding of how and what a lender sees in a borrower making them the best borrower, and how you, as a regular borrower, can leverage this knowledge to become an ideal corporate borrower.

Join us on this journey as we share the attributes that transform a corporate entity into a lender’s dream.

1. Financial Stability

Does you company exemplify financial stability? If yes, you tick one of the many main boxes that make you an ideal borrower as lenders value stability. When your business shows financial stability, it gives lenders the confidence to loan money and assures them of your ability to repay the borrowed amount.

One of the most important strategic choices managements and boards face concern capital deployment. Choosing between investing organically or acquisitively in the business versus paying down debt, building cash, or distributing capital can be difficult.

2. Financial Discipline

For any business or organization financial discipline is a must-have. Lenders also look at how well borrower’s manage their finances and keep a vigil on it. Absence of financial discipline or not having a contingency plan in place could put you in a not so good situation with the lender.

3. Credit Rating

Another important factor is financial trustworthiness . A lender looks at how the borrower handled money previously, were they consistent with debt payments, how committed they are towards financial obligations. Basically, how low are the chances of financial troubles. The higher the creditworthiness of a borrower, the lower the chances of default.

4. Industry Leaders

An organization that holds a strong position and shows considerable growth in a particular industry is definitely a lender’s delight. Holding a dominant position offers a kind of safety net to lenders against market fluctuations making them favourable borrowers and adding more confidence to the lending process. TATA Consultancy Services is a good example of it.

5. The Team

It’s the people, the management of a company that drive financial success. Strong and capable leaders are more likely to make sound financial decisions so their credibility can add value to the lending process. Mind you, some lenders do not shy away from examining the competency of the management as ultimately it is these people who steer the corporate wheel.

6. Security

Another safety net for lenders, this one actually serves as a lifeline they can rely on in case of default. A solid collateral makes loans more secure for the lender. Borrowers despite having a good CIBIL score, may fail to repay their loans. Having collateral protects lenders’ interest. They can sell the asset to make up for their loss due to non-repayment of a loan.

Some companies have high and stable revenues but few physical assets as collateral. Future cash flows are deposited with the lender as collateral instead of physical assets, giving a security to the lender.

7. Business Potential

Lenders also look at the company’s future ability to generate profits, expand the workforce and increase production and distribution. They consider you a good borrower by identifying the different ways in which you can grow and whether or not the time is right for your business.

8. Diverse Revenue Streams

Revenue coming in from different business sources makes a corporate borrower stand tall in a lender’s book. Reason being, they are not dependent on a single revenue source and also, are less vulnerable to specific industry fluctuations. This from a lender’s perspective, makes them a low-risk, ideal borrower.

9. Purposeful Borrowing

Numbers are something every lender looks at, and then some also look at the leaders. However, there are some lenders who also base their lending on innovation or strategic vision. For them, the story behind the company also holds some value.

10. Responsible Repayment

A sought-after corporate borrower is one who is responsible with their repayment. Lenders appreciate borrowers who are consistent and punctual, not only at times when the market is good, but also during uncertain times like the COVID-19 pandemic. Some corporates pay from surplus before obligation, it demonstrates corporates financial management capability and highly reflects the borrower’s commitment and influences a lender’s decision.

11. Transparent Communication

It is after all a relationship between a borrower and a lender and like any other relationship, this too requires transparency and an open line of communication. Companies that are proactive with their financial reporting, updating the lenders as and when required fosters trust that in turn enables lenders to make informed decisions.

Conclusion

An ideal corporate borrower is the dream of every lender. Behind the closed doors of financial negotiations, loan agreements, collaterals, and more, what a lender actually pursues is a borrower that comes with

• A strong credit profile
• Stable financial performance
• A reliable track record of repaying loans

However, the best or ideal borrower from a lender’s perspective isn’t just about credit scores or financial stability or repayment history. It’s an entire circle of of industry positioning, risk management, leadership, collateral or even purpose for that matter. If you are are getting into the wells of being a corporate borrower, it will be good to go into it with a long-term vision of things as it will affect your reputation and business connections and further expansions of loans if required.

Vesh