In a recent Kommersant article, Alexey Borisov, Senior Manager (Services to Credit and Non-Credit Financial Institutions) at FBK, commented on current corporate lending trends and shed light on why industry affiliation alone no longer guarantees loan approval.
Key takeaways from the expert’s commentary:
Industry no longer guarantees approval
Alexey Borisov makes it clear: within any industry, the company's debt burden, liquidity cushion, and reliability of its counterparties are crucial. Industry affiliation only helps determine the focus of the analysis, in itself, it is not indicative of the borrower’s actual solvency.
Cash flow matters more than collateral
How reliably an entity can service its debt is most crucial for a bank. Reported profit is important, but it is essential to understand exactly when the business receives cash from its customers and whether those inflows are sufficient to cover scheduled payments. Even the best collateral is no substitute for stable cash flow.
High rates have a delayed effect
The high cost of borrowing affects businesses gradually. For a while, a company can cover its payments from accumulated reserves, but that buffer is not infinite. Consequently, even a stabilisation of the key rate does not produce immediate relief.
Refinancing crowds out investment
Rapid growth in investment lending is not expected, as new projects must generate sufficient returns given the current high cost of capital. Most often, companies borrow for working capital (including due to customer payment delays) or to refinance existing debt. This does not generate new cash flow, it merely defers the resolution of underlying problems.
What should businesses do?
Prepare for discussions with banks in advance: revisit financial models, focus on working capital management, and provide documentary evidence that business plans for the coming years are realistic.
