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The Benefits of Good Loan Structuring: Cameron Mcrae
The Benefits of Good Loan Structuring: Cameron Mcrae
Table of contents
The loan must satisfy its purpose
Be sure you get the tight amount
Collateral and the type of loan are important
Recognize the risks and possible means of mitigation
Pricing is important
Financial covenants
Your company needs a loan? That sounds simple enough, but you should think about
how the loan should be structured to best serve your company. A properly structured
loan can save money as well as time, energy and, possibly, trouble in the future.
Perhaps a treatment on the subject of loan structuring should begin with two basic
definitions: loan structuring and risk. Loan structuring is simply designing the loan to
fulfill the financing requirements of the borrower while simultaneously attempting to
protect the lender against loss resulting from the failure of the borrower to repay the
debt and the interest and fees thereon. Risk can be defined as the perception of a
potential adverse event occurring in the future. Perception is the key word in this
definition because once such an event occurs; there is no longer the risk of the event.
There is then the reality of the event.
Loan structuring involves several elements, including: purpose, amount, collateral and
type of loan, risk recognition and mitigation, pricing, and financial covenants. All of
these elements must work for both the borrower and the lender within the two
definitions above.
Government contractors are better served by lenders that understand the industry well
enough to be able to structure loans effectively for their mutual benefit. Good loan
structuring is a win-win situation for both parties.