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BANKS
ZERO COUPON BOND COLLATERAL
PROGRAMS
Quick Example of content I:
Borrower will e-mail their full
business plan, executed Letter of Intent, (LOI - form
available upon request) on borrower’s letterhead with
signatures showing Proof of Funds to set up their escrow
account for neg. %, usually b/w 2-3%, their lending bank’s
LOC (Letter of Commitment) and a signed & notarized fee
agreement %.
NOTE:
Before going any further, please insure that
your project can comfortably pay the interest (only) factor
on an over-borrowed ratio of approx. 2.6 times the NET loan
required for your project.
The last thing you want to do is default, and tarnish your
reputation and credit scores.
Interest may be
figured at approximately 7 to 8 % to be safe. If it
cannot, even if granted up to two years moratorium on
payments for start-up projects, then your loan request will
likely be turned down by most any bank.
If you have your
own lending bank that will accept your investors/consultants
AA rated bank collateral as a guarantee of their principal
amount, then you are nearly there. After your bank reviews
your business plan, and supports it for the loan, this is
known through a signed LOI/LOC from your bank. The
collateral being offered to your lending bank is an AA rated
Euro bank issued 10-year Zero Coupon Bond. This bond matures
in 10 years to the face amount of the “gross” loan amount,
and at maturity pays off the principal of the loan for you.
A Specimen copy of the Bond is available upon request.
If you do not
have a lending bank, your consultant may be able to provide
one for you that does this transaction. There will be
additional bank introduction fees for this service. This fee
can generally be included in the gross loan amount.
Once the lending
bank accepts the project for funding, and escrow is opened,
your loan is set for a prompt closing. Your
Consultant/Counselor will send you their Escrow agreement
for the transaction. To open escrow, borrower, or the
lending bank, if they agree to advance to Escrow a portion
of the proposed loan, in the amount of ex. 2.2% of the
gross loan amount. This represents a 2% Euro bank
commitment fee, and .2% normal escrow charge. Once
deposited, the collateral bank will be alerted and the bank
issues its 10-year zero coupon bond live instrument,
viewable on Euroclear by your lending bank. Once
authenticated, funds versus collateral are exchanged,
bank-to-bank. Your bank can wire all funds to escrow, or
simply pay the NET project proceeds to borrower direct, and
pay all other costs for brokerage, escrow etc. to the Escrow
Co. for final disbursement. Transaction is closed.
As 100 % of the
needed funds are disbursed to the borrower at once, the
borrower will often let the funds remain in the newly
created project account in the same lending bank, at
interest of course, and make draws thereon as needed for the
project, thus offsetting some of the accruing interest on
the total loan. Loan interest is normally fully
tax-deductible in most venues.
Usually there is
an additional broker success fee, due after closing as well.
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