Loan syndication a source of business financing

Thesis Abstract

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

Loan is an agreement between the render and leader in terms of monetary consideration to pay back either with interest in a specified period of time.  Syndication in its own 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 institution to provide a borrower with a credit facility using common loan documentation.

In the country before any body has to invest in any capital project that acquires big amount of outlay.  The cost of these investments have made it possible for one financial institution to finance such investment requiring such 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 regulation.  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 tax deductibility of interest payments.  Also it saves the borrow palms of raising equivalent loan independently from different financial institution.

The repayment schedule is usually geared to the borrowers 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.

In spite of many advantages of syndication loan financing, it is definitely not a business for the unprepared.  A firm that wishes to borrow by these techniques must do its home work thoroughly.

Finally, given the limit 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.