What is a lender?
Lenders provide money to companies for their business operations. These transactions are called loans. Lenders charge interest and fees, which is how they make a profit. The lender expects the borrower to repay the loan within an agreed-upon period, known as the tenor. If the borrower cannot repay the loan in time, it is in default. A loan’s terms are set out in a legal document known as a loan agreement.
The most common lenders are banks, such as commercial banks and development finance institutions (for example, the World Bank). People, companies and governments can also act as lenders.
WHAT ARE THE DIFFERENT TYPES OF LOANS?
There are many different types of loans. Broadly speaking, companies develop projects with two types of loans:
Project finance: This type of loan directly funds the development of a project — the money can only be used for that purpose. The borrower repays the loan with money generated by the project, for instance the electricity sold by a power plant.
Corporate finance: A company can use this type of loan to fund anything across its operations, from paying employees to developing a project. In most cases, the company can decide how to use the money without checking with the lenders. Corporate finance comes in two basic varieties: term loans and revolving credit facilities. These are the two types of corporate loans to be looking for in your research.
WHAT IS A SYNDICATED LOAN?
When a company borrows a large amount of money, there is a risk it won’t be able to repay. To share the burden of that risk, banks often join together in a group, called a syndicate. This is known as a syndicated loan. Most large projects are funded with syndicated loans involving several or many banks.
The banks in the syndicate play different roles. The most important is the lead arranger (sometimes called the mandated lead arranger or bookrunner). One or a small group of banks can be lead arrangers. They oversee the entire loan process. They are responsible for negotiating the loan’s terms with the borrower. They also find other banks to join the loan — and may perform detailed due diligence on behalf of the other banks. Because lead arrangers negotiate directly with the borrower — and can ask for the inclusion of social and environmental terms in the loan agreement — they are important pressure points.
WHAT MAKES A LENDER A PRESSURE POINT FOR ADVOCACY?
If a loan is active, the lenders may be pressure points, depending on the factors below. However, if the loan has been fully repaid, the business relationship has ended, and the lender is no longer a pressure point. The exception: If you are trying to stop a loan from happening, in which case potential lenders can be pressure points, even if they haven’t yet signed the deal.
The following factors make a lender a pressure point for advocacy (the more the better):
If it is a development finance institution. These institutions make strong pressure points because often — but not always — their goal is to alleviate poverty or spur economic growth in developing countries. Many also have independent accountability mechanisms.
If it receives funding from a development finance institution. These lenders are considered financial intermediaries and may be required to follow the environmental and social standards of the development finance institution. Financial intermediary links can also sometimes open a path for affected communities to file a complaint to the independent accountability mechanism of the development finance institution. For more information on uncovering financial intermediary links, see Researching Development Finance Institutions.
If it is based in a member country of the Organization for Economic Cooperation and Development, a complaint can be filed with a National Contact Point.
HOW DO YOU IDENTIFY LENDERS?
Identifying lenders can be challenging. Most loan agreements have provisions that prevent lenders from disclosing information about the deal — unless the lender obtains the borrower’s consent, or the borrower decides to disclose the information publicly. Despite these challenges, information about loans can be found in the public domain.
Before trying to identify a company’s lenders, it is helpful to look first at that company’s balance sheet, which can be found in its latest annual report. The liabilities portion of the balance sheet shows a company’s total debt. Knowing how much debt a company is carrying is a useful starting point for the research. (Some companies don’t have debt, meaning there won’t be lenders to identify.)
The following sources can help you identify a company’s lenders. One source alone is unlikely to be sufficient. We recommend using a combination of these tools.
Inclusive Development International’s Development Bank Investment Tracker: This open source tool searches the loans and other investments made by 17 development finance institutions, which, as mentioned above, make strong pressure points. Note that not all these investments are loans; be sure to verify the type of investment being described.
Company disclosures and announcements: If a company is publicly traded, it must regularly disclose important information about itself to the public. This sometimes includes the identity of its lenders and other details on loans. Documents such as annual reports and offering prospectuses can shed light on a company’s lenders. These documents can be found on the websites of the relevant stock exchange, the relevant financial regulatory body, or the company itself. (Note that in the United States, publicly traded companies sometimes disclose details about loans in 8-K forms and 6-K forms filed with the Securities and Exchange Commission (SEC).) In addition, companies sometimes reveal details about loans in press releases or other announcements.
Internet searches: Use Google to look for references to lenders in sources such as news articles, industry analyst reports or social media sites like LinkedIn. Searching for the company name along with key terms such as “loan,” “credit facility,” “financing” or “bank” can yield results. Note, though, that not all online sources are reliable. If possible, you should seek to corroborate information found in unofficial sources with official company documents (see previous bullet point).
Transaction advisors: When companies take out large project loans, they hire firms to advise them on a range of technical issues. These legal, insurance and financial advisors can be useful sources of information. If you can identify these firms through press releases or other sources, it is worth scouring their websites for mentions of the deal you’re researching. Sometimes these firms disclose important details — such as the identity of lenders — in promotional materials highlighting their involvement in deals.
Third-party databases: Several organizations and NGOs aggregate data on important loan deals:
- The World Bank’s Private Participation in Infrastructure database collects information on project loans for some 6,400 infrastructure projects around the world.
- Banks that are members of the Equator Principles disclose details about loans they have provided for socially and environmentally risky projects. Members’ annual disclosures, which contain details on loans, can be found here.
- The German NGO Urgewald maintains a database of banks that lend to coal companies called the Global Coal Exit List.
- The Forests and Finance database, maintained by a coalition of NGOs, collects information on loans provided to some 300 agribusiness companies whose operations impact the world’s forests.
Public records requests: Many countries have freedom of information laws that allow you to request government documents. If you suspect that a government entity has loaned money to a company or project — or is considering doing so — you can file a records request with that entity. Government export credit agencies often lend to or insure overseas projects, making them good targets for public records requests. In addition, most development finance institutions have public information policies and designated officers you can write to for information on loans.