Nothing new! Banks have been using the procedure to fund loans they like but don't care to be the only contributor of funds to finance the requested loan. Two or more cooperating banks will jointly contribute funds to finance the note requirements. The advantage to this is monumental.
First, the borrower would not have gotten the loan if it were not for syndication. And second, the lead bank only has half the risk in the event of a foreclosure.
Syndications are not limited to grouping of two lenders or private investors to accomplish the fulfillment of a demand for capital. Many transactions exceed 30 or more contributors in numbers. Whether the need is for debt or equity capital for purchase of real estate or a business.
carries the obligation of an interest rate and scheduled mortgage payment. Interest rates deemed attractive can range from 6 -18% based on perception of risk. Even if your business is failing. If you cannot make the payments, as with a bank loan, you will eventually be declared in default and foreclosed upon. If it is a bank loan, usually a bank require personal recourse to all of your personal and business assets. A syndicated capital loan usually does not require personal recourse but a equity capital injection by you is usually expected but not always required.
syndications are commonly funded up to 100% of your business plan capital requirement without debt payments. Payments of profits are due if the business generate a profit. Profit payments are based on the percent of equity stake the investors share in your business. Typical equity shares demanded by investors are 25-49% with you retaining 51-75% of everything. Depending on the investment opportunity?
At expiration of the investment term, investors may require you to pay back their principal investment plus 25-49% of the increased value of the business.
Terms may range from 6 months to 5 years.
This is not an offer to buy, sell or trade securities. The above is for educational purposes only and may not reflect an actual transaction
