Business Debt Financing

Business Debt Financing

          Debt financing is the method of raising extra capital that is used for funding many projects designed by institutions. Governments borrow money from the public by selling government securities and treasury bills (Godlewski, 2008). It can also raise money by borrowing from international monetary fund institutions, for instance, word bank, global monetary fund, global Bank for Reconstruction and development to supplement the existing money. Business institutions borrow money from banks, issuers, selling debentures to mention a few to fund their objectives. The paper analyzes syndicated loans that are issued out to a group of investors and businesses to assist them to fulfill the financing functions of the

Company. A case study of Broadcom company, an American company that deals with manufacturing products, infrastructure software, developer, and designer, acquired Qualcom for $121 billion. The enterprise sought $100 billion from great financial institutions, for example, BMO Capital Markets, RBC Capital markets, Deutsche Bank, Scotia Bank, Bank of America Merrill Lynch to buy qualcom.

Syndicate loans

          Loans issued to governments and businesses to fund large investment projects (Fight, 2004).The liability can be of a fixed amount, credit line, or both. The amount which is borrowed becomes too high for one lender to bear all the risk of lending it out to the borrower. Many financial institutions link together to fund this project as a block to one client. Their liability is extended to the number of shares the company as contributed to the syndicate portfolio. All terms and conditions, including the disbursement amount, interest rates, disbursement, and settlement schedule, are contained in one agreement liability form. Participants involved in planning the syndicated loan include the organizing investment bank, Agent, and trustee (Donovan, 2005).

Agents

The agents are intermediaries who link the borrower and the lender. They owe a contractual responsibility by ensuring agreed terms between the two parties are observed and adhered to. As an administrator, the agent plays the tasks of disseminating critical information to both parties to analyze and interpret before signing the final decision. The agent is not obliged to provide any advisory role to any of the parties.

The Lead Manager

This is the institution that is entitled by the borrower to coordinate the issuance of funds according to the agreed regulations. The bank searches co-partners partners that are ready to share in the lending syndicate and spread the lending risk that might arise. Agreement of the major parties is contained in a document known as the term sheet.

Trustee

Holds the assets of the borrower that acts as collateral. In case of defaulting the loan by the borrower, the trustee implements the directives of the lenders to auction the assets to reclaim their issued funds.

Benefits accrued to syndicate loans

          Negotiating project funds is conducted by the leading manager; hence the borrower does not meet with the lender to discuss the terms. Borrowing from different currencies enables the borrower not to suffer dynamic economic and market fluctuations, for example, inflation. It allows the business to raise capital that can be used to construct long term manufacturing industries.

REFERENCES

Fight, A. (2004). Syndicated lending. Elsevier.

Godlewski, C. J. (2008). undefined. Lulu.com.

O’Donovan, J. (2005). Lender liability. Sweet & Maxwell.