Fuelling growth, enabling expansion and empowering corporates to seize new opportunities, corporate lending is so much more than just providing capital to your business.

The lifeblood of modern businesses, corporate lending may seem straightforward, but actually is a complex process that combines

• Financial acumen
• Risk assessment
• Strategic decision-making

The world of capital lending is evolving and in this article we will explore all the key factors that make corporate lending a critical driver of growth and success.

The Evolution Of Corporate Lending

Corporate lending has seen a lot of transformation in recent times. From digitisation of processes to the changing metrics of assessment, most of the proceedings have evolved. It keeps the parameters relevant to present business environment without changing the fundamentals of the principle of lending.

The basic fundamentals of lending comprise of 4C’s

1. Capacity
2. Capital
3. Collateral
4. Credit

Although the principles remain the same, however, they have been extended to add more components in line with underlying principles. One big extension is the guideline on Fair Practices Code for Lenders issued by the Reserve Bank of India that consists of procedures that add more value to a Lender’s relationship with a Borrower ensuring

• Clarity
• Transparency
• Timely responsiveness

Like there are basic fundamentals for lending, so are for corporate borrowers. They should ideally demonstrate 5 core requirements for availing loans

1. Secured
2. Liquidity
3. Diversification of Risks
4. Profitability
5. Purpose

In a business environment, both the lending institutions and the corporates are exposed to systemic factors which may impact their business. It could be anything from inflation for industrial goods, raw material price or bank rates regulated by RBI. To continue having a healthy banking relationship, both must be equipped with capabilities to weather the uncertainties in the macroeconomics environment.

The Key Players Of Corporate Lending

Unlike yesterday, today’s corporate lending includes a broader spectrum of financing options starting from the traditional bank loans to private equity investments, to venture capital..

With access to diverse financing options tailored to your unique requirements, companies can avail short-term working capital, long-term expansion capital, project or funds for research and development.

The corporate lending ecosystem is filled with several players, each with a distinct role to play.

• Commercial Banks

A primary source of corporate lending, commercials banks offer various types of loans, including term loans, revolving credit lines, and working capital loans to businesses.

• Investment Banks

Most investment banks often work with large or multi national corporations on complex financing arrangements, such as syndicated loans and debt issuance.

• Government Agencies

Government-backed institutions offers credit at minimal prices as their financing programs are created to encourage and support small businesses.

• Online Lending Platforms

Fintech marketplace companies have recently emerged as a credible source of corporate financing. Their streamlined processes and quicker access to capital makes online lenders an excellent choice.

• Private Equity Firms

Not only bringing capital but also expertise, they invest in companies by buying stakes, often with the goal of improving operations, increasing profitability, and selling their shares at a profit.

• Venture Capitalists

Playing an active role in shaping a company, venture capitalists specialize in funding startups and early-stage companies with high growth potential.

• Non Banking Financial Companies (NBFC)

NBFCs have increasingly become prominent for corporate funding requirements as they take less turnaround time for processing loans with faster disbursements.

• Bonds/Commercial paper

Long-term debt securities, this allows corporations to raise capital with fixed interest rates and maturity dates, while commercial paper is a short-term, discounted debt instrument used for immediate working capital needs.

In Conclusion

The evolution in corporate lending reflects not only the changing needs and preferences of businesses, but also the advancements in financial technology. As mentioned earlier, there are multiple lending avenues for a corporate and it is highly important for them to keep the obligation management in place to not face any unnecessary roadblocks in their business. Also, for the lenders disbursing credit to the corporate, it is important to keep the track of the conduct of credit facilities and the leverage capacity and solvency of the corporate on a periodic basis.

This warrants for both the corporate and lenders to have access to a single data stack wherein all the details are maintained and updated in real-time. It will lead to a timely management of obligations by eliminating any lags in furnishing data resulting in fast and better decision making.

Vesh