Browsing: Lenders and collateral

For those who have obtained credit facilities from banks or financial institutions (FI) they must have at one point raised the question that we intend to discuss in this article.

It is likely that somehow borrowers have managed to obtain misinformation from friends, the public or the lender. There has been a misunderstanding by many borrowers that as long as they have “collateral” they deserve that legal right to obtain credit facilities from the bank. I refer to this as a misunderstanding because banks/FI do not lend against the collateral; rather lending is based on the viability of the business/project to be financed.

In the process of credit risk assessment the primary repayment source of a credit facility is the cash flow from the business to be financed or from other pre-identified source of cash flow. The cash flow is what is considered as primary collateral. Banks and FI will …