Five C Analysis of Borrower Creditworthiness

When a company is trying to borrow money, executives, entrepreneurs and consultants should be aware that there are five criteria that most lenders care about

5 C Analysis of Borrower Creditworthiness

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What are lenders looking for?

IT IS important to understand what lenders look for when they lend money because companies often need to borrow money for various reasons: increase cash reserves, refinance existing debt, pay regular operating expenditures, research and development, capital expenditure, product development, expansion into new markets, strategic acquisitions, etc.

There are five criteria that most lenders use to assess a borrower’s creditworthiness:

  1. capacity to generate sufficient cash flows to service the loan;
  2. collateral to secure the loan in case the borrower defaults;
  3. capital that shareholders have invested in the business;
  4. conditions prevailing in the borrower’s industry and broader economy; and
  5. character and track record of the borrower and the borrower’s management.

It is important to keep in mind that lenders don’t give equal weight to each criterion and will use all five criteria to create an overall impression of a company’s creditworthiness. Lenders are typically cautious and weakness in one of the five criteria may offset strength in all of the others. For example, if a company is in a cyclical industry (e.g. construction, auto, or aviation) the company may find it difficult to borrow money during an economic downturn even if the company shows strength in all of the other criteria. Similarly, if a company’s management has a bad reputation and poor track record then the company may find it difficult to borrow money even if it has strong financial statements.

Taken together, these five criteria indicate a borrower’s ability and willingness to repay its debts. As such, if you are advising a company in relation to raising finance, you must ensure that each of the five criteria is fully addressed in your loan request.

Let’s consider each of the five criteria in a little more detail:

1. Capacity

Capacity to repay a loan is the most important criterion used to assess a borrower’s creditworthiness. The borrower must be able to satisfy the lender that it has the ability to repay the loan. To satisfy itself of the borrower’s capacity, the lender will consider various factors including:

  1. Profitability: What are the revenues and expenses of the borrower?
  2. Cash flows: How much cash flow does the business generate? The lender is interested not only in cash flows from operations, but also cash flows from investing and financing activities. What are the timing of cash flows with regard to repayment?
  3. Payment history: What is borrower’s payment history and track record of loan repayment?
  4. Debt levels: How much debt does the borrower have? How much debt can the borrower afford to repay?
  5. Industry evaluation: What is the normal debt/liquidity level for companies in the borrower’s industry?
  6. Financial ratios: There are a number of financial ratios, such as debt and liquidity ratios, that lenders will evaluate before lending money: e.g. debt to equity ratio, debt to asset ratio, current ratio, quick (acid test) ratio, operating cash flow ratio, working capital ratio, etc.

2. Collateral

While cash flows are the primary source for the repayment of a loan, collateral provides lenders with a secondary source of repayment. Collateral represents the assets that are provided to the lender to secure a loan. In the event that the borrower fails to repay the loan, the collateral may be seized by the lender to repay the loan.

The borrower must usually provide the lender with suitable collateral. To do this, the borrower normally pledges hard assets like real estate, office equipment or manufacturing equipment. However, accounts receivable and inventory might also be pledged as collateral.

Service businesses and small companies may find it difficult to provide lenders with the collateral they require because they have fewer hard assets to pledge. If the borrower doesn’t have the necessary collateral, the lender may require personal guarantees from the borrower’s directors or from a third party such as the borrower’s parent company.

3. Capital

Capital is the money that shareholders have personally invested in the business. Capital represents the money that shareholders have at risk should the business fail.

Lenders are more likely to lend money to a borrower if shareholders have invested a large amount of their own money in the business. If the business runs into financial difficulty, then the capital of the business provides a cushion for repayment of the loan. If shareholders have a large amount of capital invested in the business, this indicates they have confidence in the business venture and that they will do all that they can to ensure the borrower does not default on the loan.

4. Conditions

Conditions refer to two factors that the lender will take into account. Firstly, conditions refer to the overall economic climate, both within the borrower’s industry and in the economy generally, that could affect the borrower’s ability to repay the loan. For example, during recessions and periods of tight credit it becomes more difficult for small businesses to repay loans and more difficult for lenders to find money to lend. Thus, during these periods a small business will find it difficult to borrow money and must present lenders with a flawless loan application.

In considering the overall economic climate a lender may consider various questions including:

  1. What is the current business climate?
  2. What are the trends for the borrower’s industry? How does the borrower fit within them?
  3. What is the short and long-term growth potential in the industry?
  4. How is the market characterised? Is it an emerging or mature market?
  5. Are there any economic or political hot potatoes that could negatively impact the borrower’s growth?

Secondly, conditions refer to the intended purpose of the loan. The borrower’s reasons for seeking the loan should be spelt out in detail in the loan application. Will the money be used to buy new equipment for expansion? Will the money be used to replenish working capital to prepare for a seasonal inventory build-up?

5. Character

Character refers to the general impression that the borrower makes on the prospective lender. The lender will form a subjective judgement as to whether the borrower is sufficiently trustworthy to repay the loan.

Lenders want to put their money with companies that have impeccable credentials. Relevant factors that a lender may consider in deciding whether the borrower is sufficiently trustworthy include:

  1. What is the character of each member of the management team?
  2. What reputation do management have in the industry and the community?
  3. What educational background and level of experience does management have?
  4. What is management’s track record?
  5. What is the overall consumer perception of the borrower?
  6. Is the borrower progressive about its waste disposal, quality of life for its employees, and charitable contributions?
  7. Does the borrower have a track record of fulfilling its obligations in a timely manner?
  8. What is the borrower’s payment history and track record of loan repayment?
  9. Are there any legal actions pending against the borrower? If so, what is the reason for these legal actions?

[For more information on consulting concepts and frameworks, please download “The Little Blue Consulting Handbook“.]

List of consulting firms in India

PREVIOUSLY I created a list of certain consulting firms in Australia and America. I have decided to do the same thing for India. This list provides quick access to a list of the top consulting firms in India and provides a short description of each. I hope you find it useful.

The list of consulting firms is long, so I have divided the firms into 3 categories:

  1. Strategy and general business consulting firms in India
  2. IT consulting firms in India
  3. HR consulting firms in India

Strategy and general business consulting firms in India 2008

THIS list of strategy and general business consulting firms forms part of the full list of consulting firms in India:

  1. McKinsey & Company
  2. Boston Consulting Group
  3. Bain Consulting India Pvt Ltd
  4. AT Kearney
  5. Accenture
  6. Tata Strategic Management Group
  7. A. F. Ferguson & Co.
  8. Arshiya International Ltd
  9. Deloitte
  10. KVP Business Solutions
  11. PRTM Management Consultants
  12. Madras Consultancy Group
  13. Noesis Strategic Consulting Services
  14. RAMMS
  15. Resonate Consulting Pvt Ltd
  16. Sampling Research
  17. Sathguru Management Consultants
  18. Technopak Advisors Pvt Ltd
  19. Vision Consulting
  20. Pristine Ventures
  21. Lakshy Management Consultant Pvt Ltd
  22. Synovate Business Consulting
  23. Breakthrough Management Group
  24. Axis Risk Consulting Services Pvt Ltd
  25. BMR & Associates
  26. Fractal Analytics
  27. Intellecap
  28. Denave India Pvt Ltd
  29. Axience
  30. MarketGate Consulting
  31. Qimpro Consultants Pvt Ltd
  32. i2m Management Services Pvt Ltd
  33. Avalon Consulting
  34. Global eProcure
  35. Innoversant Solutions

1. McKinsey & Company

Websitewww.mckinsey.com/locations/india

Founded in Chicago in 1926 and operating in India since 1993, McKinsey is the world’s most prestigious consulting firm and operates in 90 locations across 51 countries. In India, McKinsey has an office in Mumbai and Gurgaon (near New Delhi).

In India, McKinsey serves leading companies, nonprofits, and governments on issues ranging from enhancing operational efficiency to charting an India strategy.

2. Boston Consulting Group

Website: www.bcg.com

Founded in 1963 by Bruce Henderson and operating in India since 1996, BCG operates in 66 offices across 38 countries. In India, BCG has an office in Mumbai and New Delhi.

BCG is an international strategy and general management consulting firm. As a truly global firm, its strong global presence offers clients a wealth of cross-cultural experience.

3. Bain Consulting India Pvt Ltd

Website: www.bain.com

Founded in 1973 when Bill Bain and others left BCG to form Bain & Company, Bain operates in 38 offices across 25 countries. In India, BCG has an office in New Delhi.

Bain India works with a range of corporate and private equity clients and has experience across more than thirty industries.

4. AT Kearney

Website: www.atkearney.com

Founded in 1926, A.T. Kearney has offices in 34 countries around the world. In India, A.T. Kearney has an office in Mumbai and New Delhi.

A.T. Kearney is a global management consulting firm with a broad range of capabilities ranging from strategy through to implementation.

5. Accenture

Website: www.accenture.com/Countries/India

Founded in 1989 and operating in India since 1987, Accenture has offices and operations in more than 150 cities across the world. In India, Accenture has an office in Bangalore, Mumbai, Pune, Hyderabad, Chennai, New Delhi, Gurgaon and Noida.

Accenture is a global management consulting, technology services and outsourcing company.

6. Tata Strategic Management Group

Website: www.tsmg.com

Founded in 1991, Tata has headquarters in Mumbai.

Tata is a large management consulting firm with expertise in various areas including: telecom, chemicals, automobiles, retail, consumer products, power, IT, banking, financial services, healthcare, insurance, infrastructure and government.

7. A. F. Ferguson & Co.

Website: www.afferguson.com

Founded in 1893 as a firm of Chartered Accountants by Alexander Fletcher Ferguson, AFF’s management consultancy division was established in 1967. AFF has an office in Mumbai, Bangalore, Calcutta, Chennai, Hyderabad, New Delhi and Vadodara.

AFF provides a range of services including: business strategy, marketing, finance, business effectiveness, human resource management, and systems and IT solutions.

8. Arshiya International Ltd

Website: www.arshiyainternational.com

Arshiya has headquarters in Mumbai and has offices in 15 cities globally. In India, Arshiya has an office in Ahmedabad, New Delhi, Vadodara, Kolkata, Mumbai, Pune, Hyderabad, Bangalore and Chennai.

Arshiya provides knowledge driven solutions focused on the areas of innovative technology, business process outsourcing, supply chain, demand chain and financial flow management services.

9. Deloitte

Website: www.deloitte.com/view/en_IN/in/index.htm

Founded as an accountancy office in London in 1845, Deloitte has member firms in nearly 140 countries worldwide. In India, Deloitte has an office in Ahmedabad, Bangalore, Baroda, Chennai, Coimbatore, Goa, Hyderabad, Jamshedpur, Kochi, Kolkata, Mumbai, New Delhi, and Pune.

Deloitte offers a broad range of integrated services in the areas of audit and enterprise risk services, consulting, financial advisory, and tax.

10. KVP Business Solutions

Website: www.kvpcorp.com

KVP is based in Bangalore.

KVP works with global customers to optimize their cost of operations and increase revenues by providing consulting services for outsourcing and go-to-market strategies.

11. PRTM Management Consultants

Website: www.prtm.com

Founded in 1976, Pittiglio Rabin Todd & McGrath (PRTM) is a global management consulting firm, which has over 20 offices across the Americas, Europe and Asia. In India, PRTM operates through its Bangalore office.

PRTM works with companies to build operational capabilities, drive product innovation, expand into new markets, and facilitate brand management. PRTM also works with global corporations to identify and forge local partnerships. PRTM focuses on the Automotive, Aerospace, Industrial, Healthcare, Telecommunications, and FMCG industry sectors.

12. Madras Consultancy Group

Website: www.consultmcg.com

Founded in 1985, MCG is based in Chennai.

MCG provides marketing advisory services and assists clients to develop market entry strategies, conduct industry studies, and carry out B2B market research and feasibility studies.

13. Noesis Strategic Consulting Services

Website: www.noesis.in

Noesis is based in New Delhi.

Noesis provides consultancy and advisory services on public policy and regulatory issues, formulation of corporate social responsibility strategies, investment advice in relation to infrastructure, equity and hedge funds.

14. RAMMS

Website: www.ramms.co.in

Founded in 1991, RAMMS has an office in Bangalore, New Delhi, Mumbai, Chennai, Kolkatta and Secunderabad.

RAMMS is a leading retail solutions company. RAMMS is part of the MAA Group headquartered in Bangalore.

15. Resonate Consulting Pvt Ltd

Website: www.resonateconsulting.com

Resonate Consulting is based in Mumbai.

Resonate Consulting is a group of change management and organisation development consultants.

16. Sampling Research

Website: www.samplingresearch.com/web

Sampling Research is based in New Delhi and has an office in Hayward, California.

Sampling Research offers audit, consultancy, and training services in innovation management, IP rights, research and statistics, and HR development & training.

17. Sathguru Management Consultants

Website: www.sathguru.com

Founded in 1985, Sathguru has an office in Hyderabad and Dhaka.

Sathguru is organised in three divisions: management consulting, information technology, and capital markets. Areas of expertise include life sciences, financial services, hospitality & entertainment, retailing, infrastructure, and IT solutions.

18. Technopak Advisors Pvt Ltd

Website: www.technopak.com

Founded in 1995 as a joint venture partner of US based Kurt Salmon Associates, Technopak has an office in Gurgaon, Mumbai and Bangalore.

Technopak is an international consumer products services and solutions company.

19. Vision Consulting

Website: www.visionconsultingindia.com

Vision has an office in New Delhi, Riyadh and Kuala Lumpur.

Vision provides management, training & e-learning, IT, and certification & rating consultancy services.

20. Pristine Ventures

Website: www.pvindia.com

Pristine is based in New Delhi.

Pristine is a strategy consulting firm specialising in market entry and business strategy.

21. Lakshy Management Consultant Pvt Ltd

Website: www.lakshy.com

Lakshy has an office in Mumbai, Baroda, Delhi, Bangalore, Pune, Kolkata and Orissa. They also have an office in New York, Calgary and the Maldives.

Lakshy provides consulting services in the fields of quality management, marketing management, human resources management, finance & strategic management. Lakshy specializes in the ISO management system certification standards. Lakshy provides consulting services and training for achieving ISO 9001 Quality Management, ISO 14001 Environment Management, HACCP ISO 22000 Food Safety Management, OHSAS 18001, and SA 8000 Social Accountability.

22. Synovate Business Consulting

Website: www.synovate.com

Founded in 1994, Synovate has offices in Australia, Bangkok, Beijing, Hong Kong, Jakarta, Kuala Lumpur, Mumbai, New Delhi, Seoul, Shanghai, Singapore, Taipei and Tokyo.

Synovate provides market and competitive intelligence-based strategic advice to corporate clients in 22 Asia Pacific markets.

23. Breakthrough Management Group

Website: www.bmgindia.com

BMG India has its headquarters in Mumbai. BMG also has an office in Africa, Australia, China, Europe, Japan, Malaysia, Mexico, New Zealand, Taiwan, Thailand, Turkey and the United States.

BMG is a leading provider of training and consulting services including.

24. Axis Risk Consulting Services Pvt Ltd

Founded in 2004 as a joint venture between Axis and the Ambit RSM Group, Axis Risk Consulting Services has an office in New Delhi, Mumbai and Bangalore.

Axis Risk Consulting Services provides risk consulting services, tax advisory and assurance and corporate advisory services.

25. BMR & Associates

Website: www.bmrtax.com

BMR has offices in Delhi, Mumbai, Bangalore and Chennai.

BMR is a premier professional services firm that provides clients with tax and regulatory advice.

26. Fractal Analytics

Website: www.fractalanalytics.com

Fractal has an office in Jersey City, Singapore and Mumbai.

Fractal provides analytics services including: modelling and analysis, data management, and text mining.

27. Intellecap

Website: www.intellecap.com

Intellecap has an office in Mumbai and Hyderabad.

Intellecap is focused on the multiple bottom-line investment industry. Intellecap facilitates investment initiatives, incubates innovative businesses and provides expert advice to assist profitable and sustainable development.

28. Denave India Pvt Ltd

Website: www.denave.com

Founded in 1999, Denave has headquarters in New Delhi and also has an office in Pune, Nagpur, Cochin, Coimbatore, Hyderabad, Guwahati, Ahmedabad, Surat, Indore, Bhopal, Chandigarh, Ludhiana, Jaipur, Lucknow, Bangalore, Kolkata ,Mumbai, and Chennai.

Denave is a pan-Indian integrated business process design and restructuring organization that provides a host of services in the sales and marketing domain. Denave aims to make businesses more competitive in their markets through precise execution of analytical strategies, supplemented by cutting-edge technologies and processes.

29. Axience

Website: www.axience.com

Founded in 2007, Axience is based in Mumbai.

Axience is a specialized provider of services to the financial services industry combining high end financial analytics, modelling and data services with high quality business intelligence.

30. MarketGate Consulting

Website: www.market-gate.com

MarketGate is based in Mumbai.

MarketGate is a strategic business and marketing consulting firm, which aims to grow the brands of its clients with well executed winning strategies.

31. Qimpro Consultants Pvt Ltd

Website: www.qimpro.com

Founded in 1987, Qimpro is based in Mumbai and has conducted assignments in India, Thailand, Malaysia, Singapore, Indonesia, Iran, Pakistan, Sultanate of Oman and Kenya.

Qimpro has pioneered the quality movement in India through professional services that range from assessment to transformation management, and from training to coaching and facilitation.

32. i2m Management Services Pvt Ltd

Website: www.i2mservices.com

Founded in 2005, i2m is based in Mumbai.

i2m provides consulting and project management services including: capability development, project portfolio management, methodology development, and project support.

33. Avalon Consulting

Website: www.consultavalon.com

Founded in 1989, Avalon has an office in Mumbai, Chennai, and New Delhi.

Avalon is a strategy and management consulting firm. Avalon provides services including: customer relationship enhancement, corporate strategy, web strategy, performance improvement, financial engineering, biotechnology, and business research.

34. Global eProcure

Website: www.globaleprocure.com

Global eProcure has an office in Los Angeles, Washington DC, London, Prague, Shanghai, Mumbai and Hyderabad.

Global eProcure is a procurement transformation solutions company that provides the Sourcing and Procure-to-Pay (P2P) Software, consulting, and outsourcing services.

35. Innoversant Solutions

Website: www.innoversant.com

With over 30 years experience providing consulting services, Innoversant Solutions has its head office in Bangalore.

Innoversant Solutions is a boutique, multi-disciplinary management consulting firm assisting international and domestic businesses and economic development agencies. Innoversant Solutions provides various services, including Business Development and Marketing, Investment Attraction and Trade Promotion.  Innoversant Solutions is a member of several prestigious industry bodies including CII, TiE, and Indo-American Chamber of Commerce.

IT consulting firms in India 2008

THE list of IT consulting firms forms part of the full list of consulting firms in India:

  1. Diamond Management & Technology Consultants
  2. Capgemini
  3. Binary Semantics
  4. ISHIR Digital
  5. ProcessLOGIX Consulting Pvt Ltd
  6. RADIX
  7. Corbus

1. Diamond Management & Technology Consultants

Website: www.diamondconsultants.com

Diamond has headquarters in Chicago and offices in Hartford, New York, Washington D.C., London and Mumbai.

Diamond is a management and technology consulting firm. The Diamond Information and Analytics Centre is based out of Mumbai and serves Diamond’s clients globally. Diamond’s Mumbai office has expertise across four industries: telecom, media and entertainment, financial services, and retail.

2. Capgemini

Website: www.in.capgemini.com

Founded by Serge Kampf in Grenoble in 1967, Capgemini is headquartered in Paris and operates in more than 36 countries. In India, Capgemini has an office in Mumbai, Bangalore, Kolkata , Pune, Hyderabad and Chennai.

Capgemini is one of the top five IT services and consulting companies worldwide. Capgemini’s mission is to enable its clients to transform and perform through technologies. The firm is grouped into four major disciplines: consulting services, technology services, outsourcing services, and local professional services.

3. Binary Semantics

Website: www.bslindia.com

Binary Semantics has an office in Edison (USA), Ottawa (Canada), Gurgaon, Bangalore and Mumbai.

Binary Semantics is a global software development company providing software development, research, web development, IT outsourcing services, optimisation, mathematical modelling, and consulting services.

4. ISHIR Digital

Website: www.ishirinc.com

Founded in 2000, ISHIR has an office in Dallas, USA and an offshore office in Noida, India.

ISHIR is a growing web design and SEO services company that develops leading-edge web solution that delivers professional services to the small and medium-sized organizations.

5. ProcessLOGIX Consulting Pvt Ltd

Website: www.processlogixconsulting.com

Founded in 2005, ProcessLOGIX is based in Mumbai.

ProcessLOGIX provides management and IT consultancy services.

6. RADIX

Website: www.radix.co.in

RADIX has headquarters in Ahmedabad and an office in Los Angeles, USA.

Radix is an offshore software development company.

7. Corbus

Website: www.corbus.com

Founded in 1994, Corbus has offices in Delhi (India), London (England), and Dayton-Ohio (USA).

Corbus provides IT and procurement outsourcing services.

HR consulting firms in India 2008

THE list of HR consulting firms forms part of the full list of consulting firms in India:

  1. Mitcon Consultancy Services Ltd
  2. Vruksham Talent Group
  3. ALP Management Consultants
  4. Synergetics
  5. Omam Consultants
  6. Ma Foi Management Consultants Ltd
  7. ABC Consultants Pvt Ltd

1. Mitcon Consultancy Services Ltd

Website: www.mitconindia.com

Founded in 1982, MITCON is based in Pune and also has an office in Mumbai and New Delhi.

MITCON provides total consultancy and training services to existing and new entrepreneurs, looking at a range of industry sectors.

2. Vruksham Talent Group

Website: www.vruksham.com

Founded in 1999, Vruksham has headquarters in Bangalore and offices in Ahmedabad, Coimbatore, Hyderabad, Mangalore and Pondicherry.

Vruksham provides management, recruitment, and software consultancy services.

3. ALP Management Consultants

Website: www.alpconsultants.com

Founded in 1996 in Bangalore, ALP has an office in Bangalore, Chennai, Pune, Hyderabad, Mumbai, New Delhi and Edison.

ALP provides recruitment consulting services.

4. Synergetics

Website: www.synergetics-india.com

Synergetics has an office in New Delhi, Chennai, Pune, Bengaluru, Hyderabad and Mumbai.

Synergetics is a leading “software development training” provider.

5. Omam Consultants

Website: www.omamconsultants.com

Omam has an office in New Delhi, Pune, Chandigarh, Kolkata and Mumbai.

Omam recruits candidates for senior and middle level management. Omam provides recruitment services to a wide range of industry segments including: telecom, engineering, automobile, FMCG, banks, insurance, chemical, petroleum, and infrastructure.

6. Ma Foi Management Consultants Ltd

Website: www.mafoi.com

Founded in 1992, Ma Foi has a strong global presence across Europe, USA, Middle East, South and Southeast Asia. Ma Foi has an office in Chennai, Colombo, Abu Dhabi, Bahrain, Shanghai, Dubai, Hong Kong, Kuwait, Kuala Lumpur, Oman, Qatar, Singapore, Bangkok, London, and New Jersey.

Ma Foi is a global HR consulting firm providing a range of services including: staffing, executive search, HR automation & outsourcing, consulting advice, and training.

7. ABC Consultants Pvt Ltd

Website: www.abcconsultants.net

Founded in 1969 by Dr B P Agrawal, ABC Consultants operate in India, the UK and Dubai. In India, ABC Consultants have an office in Kolkata (Calcutta), New Delhi, Bangalore, Madras, and Hyderabad.

ABC Consultants is the pioneer of organised recruitment services in India. Its focus is on middle and senior management talent needs. ABC Consultants recruits across various industry segments for multinational corporations as well as leading Indian business houses.