(PRWEB) October 26, 2012
The Law Firm of Pozzuolo Rodden P.C., announces the release of the article "The Anatomy of Negotiating Better Bank Loans ". Below is a sample of the first couple of paragraphs. If you would like to read more, please read the full article and other corporate law, or estate planning topics at http://www.pozzuolo.com/Pubs_Newsletters.shtml
The Anatomy of Negotiating Better Bank Loans
The negotiation of a better bank loan is generally done in two parts. The first part is for the
borrower to determine the type and terms of loan desired. The second part is to take the necessary steps to maximize the borrower's bargaining power and credibility in the negotiations. This can range from having a more professional business plan to equity injection to shopping the loan to different target banks.
First: Types of Loans and Negotiable Terms. Types of Loans:
To negotiate a better bank loan, the first step, as with anything else, is education. In
preparation it is necessary to understand the different loan agreement options available. Once these are understood a business must determine which terms it can flexibly negotiate, which terms it cannot, and which terms are unacceptable to the borrower. A bank is not going to give a borrower the ideal terms when the business is uncertain of its own requirements.
There are many different types of loans: interest only debt, installment loans and balloon payment debt are the most common. An interest only loan is the bank lending a principal amount and the business simply pays “x” % interest a year without any reduction in principal. At the end of the interest only loan, the full principal amount borrowed is still outstanding requiring full repayment. This is normal with a revolving credit loan where at each maturity date another interest only loan assumes the principal to extend the loan. An installment loan on the other hand requires equal payments monthly where each payment is partially interest and partially a reduction of principal. Compared to interest only loans, the advantage is that the principal is completely paid off at the end of the loan, but it requires higher monthly payments throughout the life of the loan. Balloon debt is generally an installment type loan that requires repayment before the principal would be completely paid off. Convertible debt financing is an attractive sweetener for startup businesses to raise money whereby an investor’s loan can be converted to equity at a future date. Each loan, including convertible debt financing, has its own place depending on the relative bargaining power, credit history and expected debt needs. More importantly, each loan has its own appropriate targets. Look for a bank that is familiar with your loan type, industry, geographic locale and has done business with companies like yours. Do not be afraid to ask competitors and other local businesses for referrals.
Interest rates can be either fixed or adjustable. Fixed rates are usually longer term (5‐10 year
terms). Adjustable interest rates are generally the one year LIBOR rate plus “x” points and readjusts as the LIBOR rate changes. Fixed is usually a higher rate than adjustable rates when interest rates are low, but lower when interest rates are high. Fixed interest rates are desirable when a business wants certainty in its interest payments, whereas adjustable rates are used if a company wants to take advantage of low interest rates at the risk of higher future rates if interest rates increase. Adjustable rates may also be capped if rates increase too much to limit interest rate risk.....
If you would like to read more, please read the full article "The Anatomy of Negotiating Better Bank Loans" and other corporate law or estate planning topics at http://www.pozzuolo.com/Pubs_Newsletters.shtml
Pozzuolo Rodden, P.C. provides specialized cost-effective legal services to privately held business owners and high-net-worth clients in Pennsylvania and New Jersey in excess of 35 years.
Business planning and transaction, complex business litigation, commercial real estate and development, construction law and litigation, advanced estate planning and administration, tax and pension law, high profile and intricate family litigation, and employment law and litigation.
Pozzuolo Rodden, P.C.
Counselors at Law
2033 Walnut Street
Philadelphia, PA 19103