How banks assess a corporate group before lending
One legal entity borrows, but the bank may analyse the wider related business. Revenue, staff, assets and debts often sit in different companies, with cash moving between them. This article explains group scope, eliminating internal turnover and substantiating repayment sources.
Where related companies affect the borrower’s results, banks look beyond the applicant. Analysts define the group, compile debt and sureties, eliminate internal revenue, check cash movements and assess debt service without double-counting shared resources.
Why banks look beyond one borrower
Legal and economic business structures may differ. One company contracts with customers, another owns property, a third purchases goods and a fourth retains margins. One LLC applies, but repayment depends on the chain.
Banks assess shared credit risk. Common owners, resources and transfers mean deterioration in one company can affect others. Analysing a strong entity while ignoring weak affiliates can distort the result.
Another company generates the cash
The borrower reports profit, but a related party receives end-customer payments.
Debt is spread across the group
Loans, leases and guarantees sit in different legal entities.
Assets are separate from operations
Property, equipment or goods belong to an entity other than the applicant.
Mutual dependence
Common ownership, management, staff, addresses, suppliers or production cycles link companies.
How banks define the group
No single everyday indicator suffices. Banks compare ownership, management, financial ties and economic dependence. Relatives’ or partners’ companies may be included alongside direct subsidiaries where they operate as one business.
| Feature | What the bank checks | Why it matters |
|---|---|---|
| Ownership and control | Members, beneficial owners, stakes, ownership chains and decision-making influence | Identifies a common control centre |
| Management | Shared directors, signatories, finance managers and authorised representatives | Indicates unified management |
| Cash flows | Loans, advances, transfers, paying each other’s expenses and transit transactions | Reveals financial dependence |
| Operations | Shared goods, brands, websites, warehouses, staff, addresses and production chains | Demonstrates an integrated business process |
| Counterparties | Common key customers and suppliers and reassigned contracts | Identifies where revenue and margins arise |
| Obligations | Sureties, security, guarantees and servicing another entity’s debt | Shows how problems may spread within the group |
Bank analysis may cover different entities from a corporate presentation or accounting consolidation. The bank’s methodology and links affecting repayment determine scope.
How banks build a consolidated picture
Simply adding reports overstates business scale. A manufacturer’s sale to a group trading company produces revenue in one entity and an expense in another, but remains internal to the group. Consolidation eliminates it.
This leaves external-customer revenue genuinely bringing cash into the group.
Internal loans are eliminated from group debt but their timing, movements and repayment demand rights are still assessed.
Banks include only cash legally and practically available for timely debt service.
Intra-group receivables, payables, dividends and other accruals are likewise eliminated. This does not make them irrelevant: they may reveal withdrawals, cross-financing or dependence on another company.
Risks banks look for within groups
Double-counted revenue
Repeated internal resale of the same goods artificially inflates turnover.
Profit sits outside the borrower
The operating company borrows while a related trading or service company retains margins.
Hidden debt commitments
Some loans, leases and sureties sit outside the applicant’s reports.
Cash withdrawals
Loans, advances or dividends regularly remove liquidity from the borrower.
Weak affiliates
A loss-making company is supported by a stable business’s cash flow.
Unsubstantiated structure
Ownership charts, company roles and transaction explanations differ between documents.
Sharp transfers around reporting dates, quick reversals, identical payment descriptions, loans with unclear maturities and companies without resources attract attention. They do not automatically prove a problem but need documentary explanations.
How group debt, sureties and collateral are assessed
Banks gather loans, credit facility limits, overdrafts, leases, recourse factoring, other borrowing, guarantees and sureties across the group. Show payment calendars as well as outstanding balances.
| Obligation | Analysis includes | Typical bank question |
|---|---|---|
| Loans and facilities | Balances, undrawn limits, interest, maturities and imminent repayments | How would fully drawing the limits change commitments? |
| Leasing | All payments, purchase-option amounts and arrears | Which company uses the asset and earns the income? |
| Sureties | Amount, term, secured debt and principal debtor’s condition | Could the surety pay if a related company defaults? |
| Collateral | Asset owner, encumbrances and available collateral value | Has the same asset been promised to several creditors? |
| Internal loans | Movements, maturities, interest, sources and actual repayments | Can related-party payments be suspended? |
Even with one borrower, banks may request owner or key-group-company sureties, another entity’s collateral, or restrictions on new borrowing and payments. These transaction-specific terms should be assessed with the financial model, not after approval.
Documents for a corporate group
- Ownership chart through to ultimate beneficial owners, showing stakes and actual control.
- Each company’s role: what it sells and owns, where staff sit and why the structure was chosen.
- Financial statements and tax reports for every significant entity over comparable periods.
- Management profit and loss, cash flow and balance sheets by company and consolidated.
- Elimination schedule for internal revenue, expenses, receivables, payables and loans.
- Bank statements for main accounts, including related-party cash movements.
- Loan, leasing, guarantee and surety register with balances and payment schedules.
- Intra-group agreements and explanations of major transactions’ commercial substance.
- Key external customer and supplier contracts , substantiating actual operations.
- Cash flow forecast after borrowing, including every external debt payment.
Illustrative example: RUB 180 million of revenue becomes RUB 125 million
A three-company group comprises a manufacturer selling to its trading company, the trader selling externally and a property LLC renting a warehouse to the group. Simply adding reports gives RUB 180 million of revenue.
| Company | Revenue | Intra-group | External revenue |
|---|---|---|---|
| Manufacturer | RUB 50 million | RUB 45 million | RUB 5 million |
| Trading company | RUB 120 million | 0 RUB | RUB 120 million |
| Property company | RUB 10 million | RUB 10 million | 0 RUB |
| Total | RUB 180 million | RUB 55 million | RUB 125 million |
RUB 125 million represents external sales without double-counted internal transactions.
External group debt totals RUB 24 million: RUB 14 million at the trader, RUB 6 million at the manufacturer and RUB 4 million of leasing. The manufacturer also owes the trader RUB 8 million internally. Eliminate this from group external debt, but check whether repayment creates a manufacturer cash shortfall.
Group free cash flow before debt service is RUB 12 million annually; existing payments are RUB 7 million. The new loan adds RUB 3 million annually.
There is limited headroom. If RUB 4 million remains in a company unable to transfer it to the borrower on time, actual coverage is weaker.
Show how funds move: agreements, dividend policy, intra-group loan repayment or the relevant company’s participation in financing. Profit somewhere within the group is not automatically available for a particular borrower’s payment.
Preparing a group for a loan application
List companies and owners linked by control, operations or cash flow.
Show goods, services and cash from suppliers to external customers.
Use one period and date for all significant entities.
Remove double-counted revenue, expenses, balances and loans.
Add loans, leases, sureties, guarantees and undrawn limits.
Identify which company generates cash and how it reaches the borrower.
Recalculate the combined schedule and post-transaction liquidity.
Explain the structure, transfers and each company’s role.
Mistakes that reduce bank confidence
Showing only the strong LLC
Checks may still reveal weak affiliates and group debt.
Adding revenue without eliminations
Internal sales inflate scale without generating group cash.
Omitting sureties
Contingent obligations become real payments if another company struggles.
Not explaining transfers
Frequent unexplained payments resemble transit activity or liquidity withdrawals.
Treating all cash flow as available
Another company’s cash cannot automatically repay the borrower’s debt.
Changing group scope during review
Inconsistent ownership charts and entity lists suggest opacity.
Need to prepare your corporate group for bank analysis?
NG Finance can help define the group, reconcile debt and cash flow, identify actual needs and prepare the application.
Request an assessmentFrequently asked questions
Does the bank always analyse the entire group?
No. Depth depends on links, amount, product and methodology. Significant entities affecting borrower cash flow or debt usually need disclosure.
Is a relative’s company automatically included?
Not always. Banks assess control, shared operations, cash movements and dependence as well as family ties.
Can another company’s profit be included?
Combined cash flow can be substantiated where funds are available for debt service and transfers documented. Common ownership alone is insufficient.
Why eliminate internal revenue?
It is not an external sale and simple addition counts the same transaction twice.
Is an intra-group loan debt?
For the entity, yes. Group consolidation usually excludes it from external debt, but its terms and liquidity effects remain relevant.
Must inactive companies be disclosed?
Concealing them is risky where ownership, debt, assets, sureties or transfers connect them. Explain their role directly.
Can a strong group improve loan terms?
Yes, where combined cash flow is stable, debt moderate and key companies can participate. The bank determines approval and terms.
Which table should be prepared first?
Start with a group chart and company-level external revenue, profit, cash flow, debt, collateral, sureties and internal balances.
Conclusion
Banks view a group as shared cash flows and risks, not an entity list. A strong application shows scope, external revenue without duplication, full debt and timely cash transfer mechanisms. Transparent links and transactions reduce credit-analysis questions.
Official materials
- Bank of Russia: guidance on Regulation No. 590-P and borrower financial assessment
- Russian Ministry of Finance: accounting standards, including related-party disclosures
- Federal Tax Service of Russia: “Transparent Business” service
- Federal Tax Service of Russia: state accounting statements information resource
This material is for information and does not guarantee loan approval. Banks define related-party scope and use their own methods, adjustments and credit risk rules.