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How does a decrease in a company credit rating affect its financing?

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Question added by Abdullah Mahhaden, CFA, CPA , Assurance Manager , Grant Thornton
Date Posted: 2013/06/15
Mahir Palejwala
by Mahir Palejwala , Relationship Manager , Commercial Bank Of Dubai

Credit worthiness decreases --> hence creditors perceive a greater credit risk (or a slowly growing default risk) --> hence this raises up the risk premium they require on financing given to the company ---> which translates into an increase in Cost of Funds (Opportunity Cost, Discount Rate or Interest Rate) however you may call it.

Nilanjana Chatterjee
by Nilanjana Chatterjee , Senior Manager Advanced Analytics and Customer Insights , Majid Al Futtaim

Availability of credit decreases with fall of credit worthiness.
Also, cost of credit increases

Aziz ur Rehman ur Rehman
by Aziz ur Rehman ur Rehman , Assistant Manager Finance , Central Power Puchasing Agency (CPPA)

basically credit rating of a firm or company in a sense of a silent message to the investor or the lender who feel confidence to see the A or A+ or A++ credit company to whom he is going to invest, those companies who decrease the credit rating means they borrowed more than earlier and loss their ability to pay the debts as compare the ability before the decrease.
So those companies adversely affected by the decrease o credit rating

SAHL HIJAZI
by SAHL HIJAZI , Purchasing Manager , BINZAFRAH GROUP

Of course decrease in company credit, will discount its financing,in which creditors will get negative feedback about : cash flow OR/AND financial position which will raise up the cost of fund.

Badar Khan
by Badar Khan , Accounts cum administrative assistant , Al Qassimia Drivng Training Centre.Sharjah

there are companies which specializes in credit rating if the credit rating decreases the it is possible that the company may pay higher interest on loan or it may face difficulty in getting loans

Habibullah Usman
by Habibullah Usman , General Manager , Venkys Italy Marmo S.r.l.

A credit rating evaluates the credit worthiness (based on qualitative and quantitative information) of a debtor, especially a business (company) or a government.
It is an evaluation made by a credit rating agency or a lender, bank of the debtor's ability to pay back the debt and the likelihood of default.
A poor credit rating indicates that the company or government has a high risk of defaulting, hence the lenders’ or bank becomes cautious and reluctant to provide any new financing to the company or government.
Also the cost of financing for the borrower with a poor credit rating is high as compared to a borrower with a higher credit rating.

ahsen ali randhawa
by ahsen ali randhawa , Relationship Manager/Credit Analyst (Officer Grade II) , National Bank of Pakistan

It badly affects the financing as the risk analysis is done on the basis of credit rating so when it is affected it will fall among the high risk business and financing will not be approved.

Haitham Arab
by Haitham Arab , Director , USFCO

Simply put.
Any decrease in a company's credit rating, will decrease its chances of obtaining financing.
 

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