Syndicated Joint Venture
Syndicated Joint Venture
Syndication joint ventures, syndication capital or capital syndication is 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 advantages to this are 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 much like Mezzanine financing with a scheduled mortgage payment. Interest rates deemed attractive can range from 6-18% or higher 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 requires personal recourse to all of your personal and business assets. A capital syndication loan or syndicated loan usually does not require personal recourse but an 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 25-51% with you retaining 49-75% of everything. Depending on the investment opportunity? Syndicated joint venture capital can possibly reduce a buyer’s equity injection obligation to zero?
At expiration of the investment term, investors may require you to pay back their principal investment plus 25-51% of the increased value of the business.
Terms may range from 6 months to 5 years.
Why Consider Capital Syndication?
- Amount of Project Capital required exceeds the lending capacity of your Bank
- You have a poor Credit Rating but a solid Management Background & Great Project
- You only have a small amount of capital for Down payment or Business Start up
- You have a Project in the middle of nowhere but it’s a Cash Cow
- You have a Fractionalized Ownership or Non-Socially Responsible Project
- You understand what Personal Recourse on a Loan really mean
- You need Funding with No Loan Payments
And many other reasons
With Mezzanine financing a down payment is required along with all the formalities of a loan.
With equity capital, depending on the transaction structure, a down payment could or could not be required. But, the weakness of any sizable capital contribution by the client to the property or business acquisition generally place the request in the category of “gift requests” with a possible return? Depends on who keep the books? Which is why in many pure equity transactions, the investor will demand over 50% ownership of the property and control the books. Some demand as much as 80%. The only way they can guarantee a favorable result on the investment of their money.
Which bring us back to a preferred return in conjunction with equity participation (a hybrid syndication) that locks in their expectation of a return on investment. And, client can usually hold control of the property.
There are millions of people on the streets looking for “no question asked” pure equity capital. At least two of these visit with All Commercial Finance a week.
They all have three things in common:
- They need someone with money to buy them a big property without exposing themselves to meaningful risk of a real down payment or prior and at funding finance expense.
- They all want to be in control of an asset purchase with someone else is money. Most have no degree in money management
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