Acquisition Financing - Some Questions
hey, boys. i've got some dorky questions on acquisition financing and would love some thoughts. in this context, i mean acquisition financing from the perspective of a bank making a loan to a client that wants to use that loan to purchase a business
How large does a financial institution have to be to provide acquisition financing? Naturally this depends on the size of the targets but is there some rule/regulation that restricts acquisition financing to a certain percentage of AUM or so?
What kind of interest rate can you charge on acquisition financing loans? Are they on the higher end due to the (i'm assuming) higher risk of acquisition financing loans?
What considerations are there for a bank that wants to begin making acquisition finance loans?
thank you in advance, friends
All right, if you are already at a Bank you should be knowing all the above but I il give you the benefit of the doubt here.
1/ No particular size restriction that I know of… most small bank take a smaller piece of the loan pie in syndicated deals, also since the financing is against the target company’s assets and CF, no particular restriction as such on exposure / AUM, however Banks do diversify exposure across industries to have a balance book by duration and industries (to have some counter cyclical ones may be)
2/ Depends right, check with ur Levfin team on trends, depends on what the synthetic ratings / CF, market stat, type of instrument, tenure etc
3/ long tenure sticky deposits, FSG relationships, a risk team that knows how to do credit
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