A revolving credit
facility is one where the borrower has the ability to repay and redraw (rather
like an overdraft).
A term loan, if
repaid early, cannot be redrawn.
A bilateral loan is
made by one bank to a borrower.
A club deal is
where a large borrower arranges for a small group of relationship banks to lend
it money. The operation is controlled by the borrower.
Most companies borrow money under a syndicated loan. Here, the arranging bank (appointed by
the borrower) manages a syndicate of banks who all lend money on the same
terms. The arranging bank controls the process. Upfront fees are paid according
to the size of commitment made. The advantages of syndicated lending are that
the loan is much more likely to be priced and structured correctly and the
borrower saves valuable negotiating time.
It can be argued that large commercial banks grant loans to
customers below economic fair value in order to ingratiate themselves with
customers in the expectation of winning more lucrative business such as mergers
and acquisitions, arranging equity or bond finance, and derivatives. This is
more often the case during buoyant economic conditions.
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