Page 39 - Banking Finance October 2022

ARTICLE

"CREDIT

MONITORING

ARRANGEMENT"- A

TOOL FOR EFFECTIVE

CREDIT ASSESSMENT

very business be it a small or big needs funding to investors. While each method of funding comes with its fair
E expand in its capacities in the form of plants, share of pros &cons, Debt financing is a simpler and reliable
machinery, equipment, meeting working capital
method of funding for businesses through loans and credit,
requirements, etc. For fulfilling this purpose,
generally huge amount of investment is required. The as it allows a business to use a small amount of money into
a much larger sum enabling faster growth that otherwise
investment may come from either internal or external might be possible. Whereas equity financing contains a large
sources. If the investment comes from internal sources, we amount of time comparatively, complex paperwork,
call the source as capital or reserves or surplus profits are disclosures& legal arrangement. Hence borrowing from a
reinvested in the business. On the other hand if the sources lender or bank or NBFCs or even from a modern-day Fin-
are external, they might be of two types i.e. Equity funding tech lending platforms is convenient as they take pride in
& Debt funding. While in debt financing capital is acquired their ability to disburse a loan within a day or two.
through the borrowing of funds from financial institutions
against a security to be repaid at a later date. Basically, when an applicant approaches a lending institution
like banks or NBFC, banks want to ensure that they are
In equity financing, rising of capital is by selling stocks to lending funds in safe hands i.e. they want to ensure two
important things about the borrowing concern, one, ability
to repay and the other is willingness to repay. The later can
About the author
be assessed by proper due diligence while the former can
Arvind Mareedu be assessed by obtaining various financial statements.
Senior Manager, Faculty
Staff Training Centre Hyderabad These financial statements will speak about the financial
Union Bank of India.
position, performance & health of the business entity, credit

BANKING FINANCE | OCTOBER | 2022 | 39