Three Forms of Corporate Lending

An alumnus of the University of Western Ontario in London, Candido Viyella earned a bachelor's degree in business administration with honors from the university. Currently serving as president and CEO of Earthview Capital, Candido Viyella evaluates corporate finance strategies with a focus on the current shifting economy and its applicability throughout South Florida and the Latin American region. He also has experience with corporate lending.

Corporate lending is similar to personal lending, except that it involves loans from a bank to a firm rather than an individual. As a result, the sums of money involved are often much bigger, and protection measures are slightly different.

There are different forms of corporate lending. The main forms include:

Asset-Based Lending

When a loan is backed by a valuable asset, it is referred to as asset-based lending. Asset-based lending is one of the safest types of financing, since the financial institution (bank) lending the money is able to safeguard itself by matching the lender's assets value with the loan amount.

Structured Corporate Lending

Asset-backed securities, collateralized fund organizations, credit derivatives, and collateralized debt obligations are all used in structured corporate lending. Each has its own sub-classes, but the objective of all of them is to reduce the risk for both the lenders and the companies who buy the loans.

Cash-Flow Lending

This type of lending typically occurs in the commercial paper market, when huge banks lend money to firms in an unsecured manner to address immediate liquidity demands, like payroll or infrastructure investment. Because it is unsecured by any kind of standard guarantee, this is one of the riskiest types of financing. As a result, these loans are frequently offered only to highly stable and well-established companies with extremely high credit ratings.