Lenders assess the borrower's financial stability and repayment capacity:
- ✓ Consistent revenue generation and profitability
- ✓ Healthy financial ratios:
- ✓ Debt-to-Equity Ratio
- ✓ Interest Coverage Ratio
- ✓ Positive and stable cash flow projections
- ✓ Acceptable credit rating (if available)
- ✓ Strong repayment history
- ✓ No record of defaults or Non-Performing Assets (NPAs)
- ✓ Good relationships with banks and financial institutions
- ✓ Positive credit reports from recognized agencies (e.g., CIBIL in India)
- ✓ Detailed feasibility study report
- ✓ Technical and economic viability
- ✓ Required regulatory approvals obtained
- ✓ Clearly defined revenue model (e.g., tolls, tariffs, contracts)
- ✓ Tangible assets such as land, buildings, plant, and machinery
- ✓ Financial securities like shares or guarantees
- ✓ In some cases, loans may be based on projected cash flows
Debt syndication is typically used when:
- ✓ The loan amount is large and exceeds the capacity of a single lender
- ✓ Risk needs to be distributed among multiple lenders
- ✓ Structured financing is required (term loans, working capital, etc.)
- ✓ Completion of KYC and regulatory compliance requirements
- ✓ Submission of audited financial statements
- ✓ Preparation of a detailed business plan or Information Memorandum
- ✓ Legal documentation reviewed and approved by lenders
- ✓ Industry should have manageable risk levels
- ✓ Preference for sectors with:
- ✓ Stable demand
- ✓ Predictable cash flows
- ✓ Government support (e.g., infrastructure, energy)
The lead arranger (bank or financial institution) evaluates:
- ✓ Feasibility of attracting multiple lenders
- ✓ Transparency and accuracy of borrower disclosures
- ✓ Clarity and viability of the deal structure