Pension plans for municipal employees offer distinct advantages - Right to Money - Part 5 of 5
Most successful small businesses that have evolved to the point where they are straining the limits of this small designation have always treated one or a few individual banks, individual loans negotiation and credit lines separately with each institution The next step funding, however, may be to consolidate the banking business in a unionized accommodation Thomas Bunn corporate Cashflow Magazine noted that if business owners and managers are sometimes reluctant to run the risk of alienating the banks with which they have long does business, the simple reality is that companies can outgrow their traditional banks and need for new capacity or an enlarged banking group to finance their continued growth.
Of course, companies can always choose to simply increase the stability of lending institutions, but it has several drawbacks Manage multiple banks is no small feat, said Michael Fidler and Patricia Neumeyer in Business Credit Each bank must come to understanding your company and how its financial activities are conducted a comfort level must be set up on both sides of the transaction, which requires time and effort negotiating a document with a bank days cantake to trade documents with four to five banks is separately a time, inefficient task staggered maturities should be monitored and orchestrated over several lines require an agreement between creditors between banks, which takes additional time to negotiate.
Given these obstacles, business owners and leaders often express interest in syndicated loans, which offer consolidation effort and the ability to make new contacts lending banks support their use and lenders as syndications because they allow them to make more loans while limiting individual exposures and spreading their risk in portfolios more broadly explained Neymeyer Fidler and more, loan administration is highly effective, with the management agent much of the process on behalf of the participants.
Syndicated loans hinge on creating an alliance of smaller banks that, by joining forces, are able to meet the borrower's credit needs This creation is stimulated by selecting an agent that manages the account, in consultation with the borrower, the arranger will bring together a group of banks to form a union, with every part of the bank loan amount required, said John Tsui Hospitality in housing loan is usually signed six to eight weeks after the contract was awarded, and after the signing, the borrower can withdraw funds.
Borrowers taking syndicated loans pay upfront fees and annual fees of participating banks, with interest accrued on a quarterly, monthly or semi-annual basis of the initial drawdown dates One advantage of syndication loans is that this market allows the borrower access to a diversified group of financial institutions, said Tsui in general, borrowers can raise funds at lower cost on the syndicated loan market they can not take the same amount of money through a series bilateral loans This increases cost reduction than the required amount increases.
In addition, economists and union officials say there are other benefits, less obvious to go with a syndicated loan These benefits include.
syndicated credit facilities can increase competition for your business, prompting banks to increase their efforts to make information on the market before you in the hope of being recognized.
The flexibility in the structure and pricing of borrowers have a variety of options in the development of their syndicated loan, including multi-currency options, risk management techniques, and prepayment rights without penalty.
Syndicated provide companies with the lowest prices in global business and save time and effort negotiating with each bank individually.
The increase in return syndicate banks are willing to share some perspectives on business issues with the agent that they would be reluctant to share with the company borrowing.
Syndicated loans made to the borrower greater visibility on the open market Bunn noted that for commercial paper issuers, rating agencies consider a syndicated loan for several years as more support several bilateral credit lines 'a year.
The ability of a borrower to obtain a syndicated loan, however, is its ability to stimulate the creation of a union in the first place syndications No two are identical, Bunn wrote The market changes every day many intangibles influence structure and cost of credit, including the experience and depth of a company's management team; trends in the industry and market; and financial trends within a business.
The first thing the company needs to do is choose an agent to facilitate communications and transactions between the borrower and the banking institutions that will form the union the first place to look for an agent is among your existing relations, said Fidler and Neumeyer Certainly you however want a bank that has syndication capacity and experience necessary to achieve market credibility Although the agent need not always be the most important part in syndication, the agent must have a force sufficient capital to be the base for the largest credit, is that you are comfortable with the bank because the agent acting on your behalf, they must understand your business and share your attitudes and priorities .
Once an agent has been selected, the bank arranged search process is undertaken This phase of the process can vary greatly in terms of complexity Some officers assess the level of interest from other lenders by simply sending the financial information necessary for the borrower and the expected shape and size of the union group, as well as data on the operations of the borrower, context, management and marketing Bunn noted that in other cases, however, this process can be more complex, involving due diligence, preparation of a complete offering memorandum syndication including financial projections and a formal bank statement.
Basically, the length of time required to form a banking group is roughly equivalent to the complexity of the proposed transaction creating a union can take place over a few weeks or months However, analysts note that the length the time required to close the deal is generally less if banks are already familiar with the operations of the borrower once the group has been determined, the relationship quickly takes the character that the company expected when borrowing is one lending institution This does not mean that the borrower relinquishes control of the process and participating actively still call to the borrower, and Fidler noted Neumeyer is simply the interaction between the participating banks which should decrease to your advantage the agent should learn about the market and help you navigate the pricing details and structuring the transaction.
In fact, are many and varied responsibilities of the agent The agent is responsible for administering the syndicated loan itself, as well as all loans, repayments, institutions of interest, and the payment of costs A major component the administration function is to ensure that communications between the lending institutions and borrowers are left open so that both parties remain informed of changing business and market realities in consideration for these services, agent is compensated by an annual fee.
Bunn, Thomas What borrowers need to know about corporate credit Syndication Cashflow Magazine October. 1995
Fidler, Michael and Patricia Neumeyer Vindication syndication why borrowers should consider Agented credit operations to companies in May 1996.
Syndicated Loans Wall Street Journal November 22, 2000.
Tsui, John F Call of syndicated loans in February Accommodation hospitality. 1992
Wienke, Robert O loan syndications and participations Trends and tactics Commercial Lending Review Spring 1994.
The syndicated loans such advantage the cost of benefits, union, loans, the benefit type.