Loan Syndication: A Source of Business Financing

Loan Syndication: A Source of Business Financing

PROPOSAL

Before going into the details of the topic of loan syndication, it will be wise to know the actual meaning of this topic.

The loan is an agreement between the render and leader in terms of monetary consideration to pay back either with interest in a specified period.  Syndication in its little definition has to deal with any financial institution that is assigned with the work of giving loans to the beneficiaries.

Now loan syndication, as a source of business financing in Nigeria has to do with the agreement between two or more lending financial institutions to provide a borrower with a credit facility using common loan documentation.

In the country before anybody has to invest in any capital project that acquires a big amount of outlay.  The cost of these investments has made it possible for one financial institution to finance such investment requiring such a huge amount because he cannot foot the bill along.  Loan syndication has become an attractive credit delivery technique aimed at spreading risks and redialing the impact of the restricting laws and regulations.  There are problems also associated with loan syndication in Nigeria economy which include people argue that loan syndication is very expensive and involves much administrative work because the effective cost of capital exceeds the interest paid.  Secondly, loan syndication is time-consuming because of the documentation requirements.

In the area of problems there would also be some advantages incurred through loan syndication, loan syndication lowers the cost of capital to the firm because of tax-deductibility of interest payments.  Also, it saves the borrow palms of raising equivalent loans independently from a different financial institution.

The repayment schedule is usually geared to the borrower’s cash flow ability to service the debt.  Also, the borrower deals directly with the loan and can be tailored to the borrower need through direct negotiation.

Despite many advantages of syndication loan financing, it is not a business for the unprepared.  A firm that wishes to borrow these techniques must do its homework thoroughly.

Finally, given the limited development of the capital market and the preferences for loadable funds in form of bank credit, the practice of loan syndication is bound to become more popular in Nigeria and remain an important technique of credit delivery by financial institutions.

TABLE OF CONTENTS

TITLE PAGE                                             II

APPROVAL PAGE                                  III

DEDICATION                                           IV

ACKNOWLEDGEMENT                          V

PROPOSAL                                              VII

CHAPTER ONE

1.1       INTRODUCTION

1.2       PROBLEMS IDENTIFICATION              1

1.3       STATEMENT OF OBJECTIVES            4

1.4       LIMITATIONS OF STUDY              5

1.5       SIGNIFICANCE OF STUDY          6

1.6       SCOPE OF STUDY                        6

1.7       DEFINITION OF TERMS                        6

CHAPTER TWO

LITERATURE REVIEW                                    8

2.1       LOAN SYNDICATION AS A SUBJECT9

2.2       EVALUATION OF LOAN SYNDICATION       10

2.3       LOAN SYNDICATION AS A LIQUIDITY SQUEEZE11

2.4       EVALUATION OF SYNDICATION LOAN FINANCING13

2.5       FORMS OF SYNDICATED CREDIT FINANCING16

2.6       ELIGIBILITY ISSUE IN LOAN SYNDICATION                  17

2.7       PROCEDURE FOR SYNDICATED LOAN               17

REFERENCES                                                            19

CHAPTER THREE

3.1       RESEARCH DESIGN                                                 20

3.2       TYPE OF DATA USED                                                        20

3.3       LOCATION DATA                                                       20

3.4       SOURCES OF DATA                                                 21

REFERENCES                                                            23

CHAPTER FOUR

FINDINGS                                                                              24

4.1       INTRODUCTION AND STATISTICAL METHODS  25

4.2       FINDINGS OF SYNDICATED LOAN FINANCING

REFERENCES                                                            27

CHAPTER FIVE

SUMMARY, RECOMMENDATION AND

CONCLUSIONS

5.1       SUMMARY OF RESEARCH FINDINGS                  28

5.2       CONCLUSION                                                   29

5.3       RECOMMENDATIONS                                     30

BIBLIOGRAPHY                                                          33

CHAPTER ONE

1.1 INTRODUCTION ANALYSIS

INTRODUCTION

The relative insufficiency of funds for capital investment is a common factor in every economy especially in developing countries of the ward, like Nigeria.

Finding a solution to these problems of providing funds for capital investment has been a major pre-occupation of financial institutions in Nigeria one of the solutions that come up is syndicated loans, which is aimed at spreading risks and weakening the impact of restricting laws and regulations lending by financial institutions.

Loan syndication is defined as an agreement between two or more lending financial institutions to provide a borrower with a credit facility using common roan documentation.

The spectacular growth of Loan syndication as a source of financial instruments for business organizations occurred as a response to several economic factors in Nigeria.  Notable among these were:

• Restrictions on credit expansion of government and monitoring authorities to minimize.
• The scraping of import licence requires which enables more users of imported equipment and machinery to source and warning some into the country.
• Deregulation of interest rates made Loan syndication attractive to both business organizations and financial institutions.

In addition, there are/certain legal and regulatory limitations on lending activities of commercial and merchant banks such as the statutory lending limit as provided in the banking Act of 1969 section 13 (1), the liquidity requirements.