Page 36 - Banking Finance April 2023

ARTICLE

"CREDIT

MONITORING

ARRANGEMENT"- A

TOOL FOR EFFECTIVE

CREDIT

ASSESSMENT

very business be it small or big needs funding to funding comes with its fair share of pros &cons, Debt
E expand in its capacities in the form of plants, financing is a simpler and reliable method of funding for
businesses through loans and credit, as it allows a business
machinery, equipment, meeting working capital
requirements, etc. For fulfilling this purpose,
enabling faster growth that otherwise might be possible.
generally huge amount of investment is required. The to use a small amount of money into a much larger sum
investment may come from either internal or external Whereas equity financing contains a large amount of time
sources. If the investment comes from internal sources, we comparatively, complex paperwork, disclosures& legal
call the source as capital or reserves or surplus profits are arrangement. Hence borrowing from a lender or bank or
reinvested in the business. NBFCs or even from a modern-day Fin-tech lending platforms
is convenient as they take pride in their ability to disburse a
On the other hand if the sources are external, they might loan within a day or two.
be of two types i.e. Equity funding & Debt funding. While in
debt financing capital is acquired through the borrowing of Basically, when an applicant approaches a lending institution
funds from financial institutions against a security to be like banks or NBFC, banks want to ensure that they are
repaid at a later date. In equity financing, rising of capital lending funds in safe hands i.e. they want to ensure two
is by selling stocks to investors. While each method of 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
be assessed by obtaining various financial statements. These
Arvind Mareedu financial statements will speak about the financial position,
Senior Manager, Faculty performance & health of the business entity, credit history,
Staff Training Centre Hyderabad
timely repayment, etc. The banks rely very much on these
Union Bank of India.
reports for their credit decisions by carefully evaluating the
BANKING FINANCE | APRIL | 2023 | 31