What is Loan Agency?

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Loan agency is a term used in capital markets to describe certain types of loan financing, commonly called syndicated or bilateral loans. In both instances, a company also referred to as a “borrower”, needs to secure funding. Maybe the company is acquiring a competitor, building a new data center, purchasing an aircraft, needs working capital, or has another legal purpose for funds.

Syndicated loans: what are they?

The amount of loan needed to achieve a borrower’s goal is too large or risky for one financial institution to lend the entire amount itself, so a syndicated loan is used. The loan is financed by a consortium of lenders – investment banks, institutional investors, hedge funds, and other financial organizations – in order to reduce lending risk.

Bilateral loans: what are they?

In a bilateral loan, the amount borrowed is typically less than a syndicated loan and a single lender will fund the entire amount. A credit agreement details the specific terms of the loan, which is negotiated by the borrower, lenders, agents, and other loan parties.

How does an Administrative Agent work?

In credit arrangements, an administrative agent usually carries out the administrative duties of the loan and serves as a go-between for the borrower and lender(s). Typically their responsibility includes record-keeping, establishing rates, determining interest, sending notices of payment, arranging borrowings, carrying out trades on behalf of lenders, collecting regulatory documents from the borrower, and more. When the loan is secured with collateral, a collateral agent receives any interest held in it. Usually one entity fulfills both roles; while they have a firm administrative basis, they do not act as fiduciaries. In situations where some degree of discretion is needed, the agent functions in accordance with the instruction of most lenders.

Role and responsibility of a loan agency:

  1. The facility/administrative agent
  2. Agents of collateral damage
  3. Account bank operator​
  4. Calculation agent ​

Borrowers can use loan agencies to manage their cash flow, hold collateral, and communicate with lenders. By taking on activities that lenders would have otherwise handled themselves, loan agencies help lenders control costs, avoid conflicts of interest, and maximize operational efficiency.

Loan Administration: An important part of any loan agency

Loan agencies develop an international network with focused capital markets expertise across their business that allows them to provide seamless, one-stop customized solutions to support capital market issuers and investors around the world.​

Third-party loan administrators serve loans after the loan agreement has been executed and coordinate with lenders and borrowers.

As part of the loan agency’s services, the agency maintains a borrower database; accounts for disbursements and repayments; tracks interest repayment; follows up with borrowers for interest recovery; calculates fees; and conducts banking operations and reports.

Capital market experts are always available at loan agencies in major financial centers in Europe, the US, and Asia. By combining their local market knowledge (where they are; for example, USA) with their international experience, loan agencies facilitate access to specialist capital markets expertise and knowledge for customers.

ESOP Administration:

The Employee Stock Ownership Plan (ESOP) is a benefit scheme that gives employees an ownership interest in companies. It is a corporate finance strategy that aligns shareholders’ interests with the welfare of employees. As long as the employee resigns or retires from the company, the company usually holds the shares provided to him or her in trust for safety and growth.

The services of an independent third party are typically used when establishing an ESOP. Employee Welfare Trusts (EWTs) are established to address employee welfare needs, such as funding child care, medical expenses, and extraordinary expenses not covered by compensation.

In this area, loan agencies offer a range of customized services, including:

  1. Document review for transactions
  2. Execution of trust documents and obtaining PAN/TAN
  3. Establishing and operating trust bank/depository/broker accounts
  4. Undertaking the purchase and sale of securities, through an appointed broker, in line with a pre-approved
  5. investment policy​
  6. The benefits application policy should be implemented
  7. Maintaining trust accounts and recording approvals
  8. Complying with tax laws and filing tax returns
  9. Reporting and management information systems

P2P Platform Administration:

A peer-to-peer (P2P) lender lends money directly to individuals or businesses through an online platform. Investing as a peer-to-peer lender can be an appealing option for individuals or financial institutions, and interest rates may be more favorable since the middleman is removed. Through the P2P platform, lenders and borrowers are able to reach a mutual agreement.

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