New credit evaluation framework for tech companies for bank credit
Obtaining a credit facility for the expansion of a tech company or a start-up is a daunting task due to challenges in obtaining debt facilities, as traditional credit evaluation methods require borrowers to provide tangible collateral in order to be eligible for a business loan.
Tech companies are evaluated using existing generic credit evaluation frameworks, which have inherent shortcomings in evaluating the merits and demerits. Meanwhile tech enterprises are generally underserved by banks which create a funding gap for these businesses.
Last week the Information and Communication Technology Agency (ICTA) in collaboration with PwC Sri Lanka introduced a new credit evaluation framework to be adopted by lenders when lending to tech companies with minimal collateral. The framework was launched during a virtual media briefing and it becomes an alternative mechanism for the traditional framework. The framework has been built around four pillars, founder, market, product and financials and has thus provided tech companies to be evaluated on quantitative and qualitative factors that are most relevant to them.
The framework was formulated with the support and consultation from an industry-leading steering committee that consists of Calcey Technologies (Pvt) Ltd, CEO, Mangala Karunaratne; Lankan Angel Network, CEO, Chalinda Abeykoon; NDB Investment Bank Limited, Head Chief Corporate Advisory Officer, Nilendra Weerasinghe; Cemex Software (Pvt) Ltd, Director, Wellington Perera and ZMessenger (Pvt) Ltd, CEO, Jayomi Lokuliyana.
During the virtual media briefing, PwC Sri Lanka Director for Deals, Kavinda Weerakoon mentioned, “Technology enterprises are generally underserved by banks which create a funding gap for these businesses. PwC brought in deep banking sector insight from a cross-functional team of experts to develop this framework. We are optimistic that this framework will act as a catalyst for lending institutions to provide flexible and innovative financing facilities to develop high-impact technology-driven sectors of the economy.”
“The technology industry is core to the country’s economic growth with the highest potential for employment opportunities. But most tech companies are faced with difficulties in obtaining loans due to a lack of physical collateral. Moreover, the pandemic has forced many challenges for tech companies, derailing the growth to some extent. In this background, the new framework will play a crucial role in boosting the tech industry,” noted Anura De Alwis, Chief Digital Economy Officer, ICTA.