Introduction

Corporate Lending is essentially the same as a personal loan, except instead of being made from a bank to an individual, its made from a bank to a corporation, as a result the amount of money being dealt with is substantially larger, and some of the protections are a bit different. Corporate lending can take any number of forms, including asset-based, structured finance, and cash- flow corporate lending. Following explained are the: The various guidelines/conditions of loan. Contents of a loan application. The procedure of loan sanction. The post-loan follow ups.

When a company requires a loan, it is mandatory for them to prepare a loan application and submit it to the appropriate bank. Every bank has their own internal set of guidelines/conditions and procedures of sanctioning loans which are not disclosed. But, a general overview of the guidelines/conditions is as follows:

I. Guidelines/Conditions of Loan Approval:

Reasons why a loan is generally procured i. Starting up a new business. ii. For expansion, diversification , and growth purposes. iii. Purchase of new assets. Scan all the financials enclosed with the application letter. Knowing creditworthiness of a company is essential as it acts as a check on the companys capacity to repay the loan amount. Knowing the revenue model of the company. This describes how the firm will earn revenue , generate profits and produce a superior return on invested capital. Finding the existing level of debt of the company ie. If they have taken any other loans from other financial institutions The bank should be aware of the net worth of the project / asset of the company for which the company wants to acquire loan.

II. Contents of the Loan Application:

Following are the essential contents of the loan application. The nature of business - Goldiam International Ltd. is an export house The companys latest financials Financial statement of Goldiam International Ltd. The growth plans that the company wants to adopt to earn profits The various reasons the company wants to acquire the loan The collateral by which the company assures repayment of the loan amount The future projections of the company, i.e. what their revenues would be after growth and expansion.

III. Procedure of Loan Sanction:

Bank looks into the sector of business as a crucial deciding factor before sanctioning the loan. Eg. Real Estate, FMCG, Pharmaceuticals Goldiam International Ltd. belongs to import-export sector The bank forwards the companys proposal and all their relevant documents to the investment committee who will approve of the loan. If the bank is satisfied with the information provided and all conditions are met, they will consider approving the loan after forwarding it to the investment committee, who will scan all the enclosed documents all over again to be sure of lending the money. They will scrutinize all the documents (financials) again so that they may go ahead with sanctioning the loan. *Scrutinizing of documents to be presented in the form of a role play. *Information to be covered in the role play debt-equity ratio, securities pledged, promoters guarantee, EBIDTA, loan to value, tenure of loan, moratorium period, loan repayment schedule, previous track records and defaulters lists of banks, knowing networth of the company, disbursements, CAGR, debt service coverage ratio, leverage, profitability The rate of interest is then decided 9.5% + risk factor for Goldiam International Ltd. Earlier the rate would be determined by the RBI through the PLR (Prime Lending Rate), this has now been scrapped and is now replaced by the Base Rate System The interest rate depends upon the base rate. This rate is a determined rate which is set for every bank differently and they have to charge interest accordingly There is a rate that is charged in addition to the base rate by the bank from the company. The rate of interest would depend upon the risk factor of the business, higher the risk, the rate of interest would consequently also be higher and vice versa The profit made by the bank would only be on the additional rate of interest charged to the company. The bank looks at the stage of the business ie. The stage on which the particular business is currently functioning. For instance early stage/ mid stage / late stage The risk factor and the stage of the business are interlinked, ie. if the business is on its early stages the bank would charge a higher rate of interest and collateral requirements to make up for the risks The company has to keep a certain number of their fixed assets as collateral with the bank against the loan it takes, such as Plant & Machinery etc. Once the interest rates and all other conditions are fulfilled before the loan is sanctioned the bank may have certain pre-disbursement conditions to be complied with. Once all the pre-disbursements are met the bank proceeds with making the disbursements. This completes the loan sanctioning procedure. There is a special department in each bank that is only dedicated to post loan follow ups. IV. Post Loan Follow Up: The bank monitors whether the loan amount is being used in the prescribed manner. The progress of the company is constantly monitored by the bank. The team also keeps a watch on the cheques issued whether they are being honoured or dishonoured. Each bank has their own independent inspectors who personally visit the companys plant and cross verify all their inventories etc.

CONCLUSION: * The world of corporate lending is arguably one of the most complex in the world of economics and even relatively minor events can have massive effects. In spite of its dangers, however corporate lending is absolutely necessary for modern capitalism to survive.

*there is a surprise slide which will be presented only on the day of the presentation and is not part of the uploaded presentation