Loan Syndication a Source of Business Financing
Chapter One
OBJECTIVE OF THE STUDY
The purpose of this study includes:
- To examine the general terms of the various issue involved in Loan syndication
- To find out whether Loan syndication is really a new approach to or another Loan syndication can help in industrial development of the country.
- To examine the extent of penetration of syndicated loan financing among business organization in the country.
CHAPTER TWO
LITERATURE REVIEW
THE SYNDICATION PROCESS
The process of loan syndication can be split in three, namely the contract/mandate stage, the contractual/documentation stage, the post signing/credit administration stage.
- The Contract/Mandate Stage Macdonald [6] regards the contract/mandate stage as the green field stage where the basic ground work and infrastructure for the successful prosecution of the syndication are initiated and laid. Usually a prospective loan applicant draws up its credit requirement and the most suitable package that would maximize its expected utility. These catalogues of requirements are presented to a bank or banks that can help in procuring the desired credit. If the loan request is in excess of the bank’s lending limits, rather than commit itself to the total amount demanded or reject the loan application due to portfolio constraints, the bank may suggest to the loan applicant that the desired credit be raised through a syndicate. Having satisfied itself that the project is feasible and viable, the bank will state the terms and conditions for syndication. An acceptance of this by the loan applicant confirms mandate to syndicate the facility. Nervitt was quick to add that in case of a limited liability company the mandate in the form of a board resolution must show among other things the acceptance of the proposed interest rate, the repayment terms, the security and the consortium lending charges. Having given the mandate, the lead bank then initiates a programme for actualizing the syndication. In order to sell this project to other financial institutions the lead bank must prepare the “placement/confidential information memorandum”. This document will state among other things the terms, and conditions under which the lead bank has been mandated by the bank’s customer to raise the credit, a brief description of the borrower, the main shareholders/promoters of the company, the directors and the management team. Other relevant information that must be shown are technical, financial and market information about the products and prospects of the company. The memorandum may contain a disclaimer cause which urges the participating banks to carry out their own independent credit appraisal. It must be emphasized that this disclaimer clause does not excuse the lead bank from any act of gross negligence during the time that the loan is on call. The placement memorandum also contains fees paid to the lead bank and covenant governing the credit facility. Still on this, Milchel and Wall hinted that the next important stage is the meeting of all the participating lenders to review the mandate obtained by the lead bank. Egbui emphasized that the importance of this meeting is to reach an understanding on all the issues involved and to present a joint offer to the borrower in order to obtain a firm mandate to raise the credit if the borrower gives his consent.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
DATA PRESENTATION
Table 4.2: Demographic profile of the respondents
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain loan syndication a source of business financing. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of loan syndication a source of business financing
Summary
This study was on loan syndication a source of business financing. Three objectives were raised which included: To examine the general terms of the various issue involved in Loan syndication, to find out whether Loan syndication is really a new approach to or another Loan syndication can help in industrial development of the country and to examine the extent of penetration of syndicated loan financing among business organization in the country. The study adopted a survey research design and conveniently enrolled 80 participants in the study. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN in Abuja. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
In spite of the problems advanced about loan syndication as an instrument of finance, it has come to stay. This is because although it is a potent source of finance to big time industrialists, it is beneficial to banks. This is attributable to the high returns they make, the prestige inuring from being a lead bank, the generous commission charged and received, the fees and the enhanced status of the bank after a successful outing.
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