In the past – and as I have experienced first‑hand – lending to businesses often required two things: hard collateral and a personal guarantee from the business’s owners. The logic was simple: to tie the lending risk to the personal financial strength of the owner.
After the financial crisis and during waves of regulatory reform, the emphasis globally has shifted to stronger, more transparent corporate governance. This applies not just to banking institutions but to corporates in general. In parallel, for corporates seeking funding, this creates a new expectation: lenders, investors and funds increasingly demand evidence of sound governance; risk foresight assurance, internal control and efficiency in operations.
Given the pressures above – societal, regulatory, market-based – there’s a growing shift (or need for shift) toward a model where the company itself (its structure, governance, systems, culture of integrity) guarantees sustainable performance.
-> What the shift means:
- Good corporate governance practices & ESG are a necessity under regulatory, investor and market pressure
- For businesses (especially medium, medium‑large, or growth‑oriented ones), investing in proper governance, internal controls, risk‑management systems, transparency is likely to pay off: easier access to financing, lower cost of capital, more options (equity, institutional investors, development funds), and lower reliance on other forms of collateral
- For lenders/ financiers, it reduces dependency on individual owners’ personal wealth, limits reputational and enforcement risk and aligns credit risk assessment with structural and operational strength of the company
What used to be covered primarily by owners’ personal guarantees — or increasingly should be – is secured by the firm’s governance, transparency and integrity. In a world of volatility, scrutiny, regulatory pressure and investor demands- the paradigm of robust governance & integrity isn’t just “a nice to have.”
It is the “new collateral”!
Christina Giovani | co-Founder| The Best Practice Network
The Best Practice Network — Connecting Capital. Strengthening Governance. Enabling Impact.
