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Corporate Loans - Funding Industrial Growth
By: Andrew Baker
If individuals thought that they were the only ones who had the use for loans,
then corporate loans will show them that they are incorrect. The corporates, who
are deemed to have a large surplus of cash, too find themselves at the mercy of
the loan providers (though not in the strictest sense of the word).
The use for corporate loans may emerge out of two reasons. Firstly, there maybe
a shortage of cash and the loan is required to substitute the cash shortage.
Secondly, they feel that the cash balance will find more productive uses if the
task at hand is accomplished with a loan.
The position of the corporates is not as vulnerable as that of ordinary
individuals, when it comes to getting corporate loans. Because of an increased
bargaining power, corporates are able to grab a much better deal than individual
borrowers.
Finance is the lifeblood of any business. Therefore, while it will be prudent
not to make an injudicious use of corporate loans, it will neither be
advantageous to starve the business of the much needed capital. Corporates risk
its capital by taking business decisions- the grounds for profit. The risk
taking capacity is severely stunted in the event of shortage of capital. A
stunted risk taking capacity has its repercussions on the future of the
corporate house.
Finding it too shocking to digest. This is however true. Shortage of funds was
particularly behind many corporates not being able to complete assignments on
time or not up to the quality standards stated.
Corporate loans come in a variety of forms. In this article we shall discuss
about some of the most important corporate loans that businesses are making use
of in the UK.
• Real estate financing:
Offices and factories are an important asset for the enterprises as all
operations are conducted from this place/places. Banks and financial
institutions finance the construction or purchase of an already built premise
through real estate financing. Corporate loan of this form is similar to what is
known as a mortgage. The important loans that are offered under real estate
financing include land loan, property development loan, bridging loan for
corporates and banker’s guarantee.
• Performance bonds and guarantees:
Larger enterprises have to show that they are credible enough to get access to
certain contracts. Corporate loan providers offer to guarantee the
trustworthiness of the enterprise by issuing letter of guarantee, letter of
indemnity, banker’s guarantee and similar other documents pertaining to the
credibility that a business house enjoys in the market. This becomes
particularly important in modern day economy where business is conducted on a
global scale. Businesses may be well known on a regional scale but globally it
might be a minuscule. With the corporate loan provider vouching for the
business, the standing of the business house greatly improves.
• Stocks and shares financing:
This facility is available for all types of enterprises whether private or
public. Businesses can use the service at any stage of their life. Shares or
unit trust, initial public offers (IPOs) and substantial shareholders are some
of the methods used for financing business plans.
• Debt capital market products:
The method is again for public as well as private sector enterprises. This
includes tasks such as underwriting or managing a variety of debt instruments.
These can be suitably used for medium and long term financing. Some of the
important components of these methods are syndicated loan facility, fixed rate
bonds, floating and variable rate notes, and commercial papers. Syndicated loan
facility can reduce dependence on one particular lender. The loans may be
structured to meet the borrowers financial needs in the best possible manner.
The corporate loan will be repaid in the manner decided by the entrepreneur. The
cash flows are the principal source of funding the repayment of corporate loans.
Banks and financial institutions demand a guarantee or collateral from the
borrower as a show of commitment to the project. Different lenders may define
the clause of collateral amount and form differently. As with the loans offered
to the individuals, corporate loan providers have a lien on the collateral
offered. This will be exercised only when the loan has not been paid in full.
The dreams you ever saw for your business that were shelved because of the lack
of adequate finance get a platform through which to be realised. Corporate loans
provide this platform. Whatever be the needs of the business, from providing a
continuous source of working capital to business expansion needs, corporate
loans will always be useful.
About the Author:
Andrew baker has done his masters in finance from CPIT. He is engaged in
providing free, professional, and independent advice to the residents of the UK. He works for the Secured loan web site uk finance world for any type of uk secured and unsecured loan please visit http://www.ukfinanceworld.co.uk |
