Loan Syndication: a Source of Business Financing in Nigeria

Introduction Of Loan Syndication: a Source of Business Financing in Nigeria

The relative insufficiency of funds for capital investment is a common factor in every economy especially in developing countries of the ward, like Nigeria.

Finding a solution to these problems of providing funds for capital investment has been a major pre-occupation of financial institutions in Nigeria one of the solution that come up is syndicated loan, which h is aimed at spreading risks and weakening the impact of restricting laws and regulations lending by financial institutions.

Loan syndication is basically defined as an agreement between two or more lending financial institution to provide a borrower with credit facility using common roan documentation.

The spectacular growth of Loan syndication as source of financial instruments for business organization occurred as response to several economic factors in Nigeria.  Notable among these were:

–                     Restrictions on credit expansion of government and monitoring authorities to minimize.

–                     The scraping of import licence requires which enables more users of imported equipment and machineries to source and warning some into the country.

–                     Deregulation of interest rates made Loan syndication attractive to both business organization and financial institutions.

In addition there are/certain legal and regulatory limitations on lending activities of commercial and merchant banks such as the statutory lending limit as provided in banking Act of 1969 section 13 (1), the liquidity requirements etc.

In order to surmount these legal and regulation, limitations on lending activities of commercial and merchant banks.  Loan syndication has become an attractive credit delivery technique aimed at spending risks and reducing the impact of the restricting laws and regulations.

Currently, there exist a comprehensive enacted law on Loan syndication in the country as to regulate the activities of the financial, institution who lead and participate in the syndication.

What is not the rapid growth of financial institution involved in Loan syndication but their activities, which have been quite remarkable over the years.

PROBLEMS IDENTIFICATION

There are conflicting views as to whether business organization shold be financed by syndicate loan or not.  The opposition to theuse of alternative and involve much administrative work

Also, there is need to point out in very clear terms the advantages inherent in  syndicate loan as medium and long-term financing.

STATEMENT OF OBJECTIVE

The purpose of this study includes:

–                     To examine the general terms of the various issue involved in Loan syndication

–                     To find out whether Loan syndication is really a new approach to or another Loan syndication can help in industrial development of the country.

–                     To examine the extent of penetration of syndicated loan financing among business organization in the country.

LIMITATION TO THE STUDY

This work would have been more comprehensive and perfect if not for the constrains imposed on the researcher by the following factors.

Death of statistical data:

Lack of statistical data from our financial institutions like the central bank of Nigeria (CBN).

Ministry and Economic Development posed as constraints to the researcher.

Cost:  The researcher would have extended the survey but for the enormous cost of transportation, it was impossible.

SIGNIFICANCE OF THE STUDY

Lender:  The lender bank is appointed and it is called the agent bank it is an agent of the lender and its main duty is to monitor the syndicated growth loans.  This has contributed to the economic growth of the nation.

SCOPE OF THE STUDY

SCOPE:  The scope of the study dealt with Loan syndication as a source of business financing in Nigeria and its important to the industrialists and economy in Nigeria.

DEFINITION OF TERMS

LOAN:  This is a credit facility granted to a customers which is install mentally repayable over a period of time.

SYNDICATION:  This is an association of Industiralists or banking customer formed to carry out industrial project.

LOAN SYNDICATION:  This is basically defined as an agreement between two or more lending financial institution to provide a borrower with credit facility utilizing loan documentation. utilizing loan documentation.