Finance

Loans or Bonds – Choosing a Financing That Fits Your Company

If you hope to start a new business or upgrade a rapidly-growing/struggling one, the first thing you must figure out is where to get financing. Without a source of financing to assist you, it will not matter if you have a million-dollar idea—you won’t even be able to open the doors to your business (or keep it open).

Companies that prefer long-term financing and non-cumbersome financing would find great value in the bond format, perfect for risk-averse. For companies with investment-grade public rating, considering fixed income markets are more efficient, not only because of maturity but also in terms of the financial cost.

Why are bank loans in their different arrangements still seen as the instrument of choice by so many companies when borrowing? It’s chiefly because it offers flexibility in terms of early repayment without penalties and the option to renegotiate some of its conditions (amortization calendar, maturity, interest rate, etc.) This is evident in bilateral bank loans – between a company and a bank – although it can also apply to syndicated loan format, where renegotiation of settings and calendar alterations and maturity are very common.

Therefore, loans offer the incredible advantage of being structured, customized to suit the company, and capable of adjusting to its performance over time, more so when the lender is a bank that encourages relationships aimed at offering long-term support.

Bonds and loans: complementary financing instruments

Considering bonds and loans in equally exclusive terms makes no sense since they are, in many cases, complementary products, and this is also how more sophisticated companies consider it. Combining the features offered by both formats creates an enhanced and expanded financial structure in terms of funding sources.

An operation where an optimum combination of borrowing and bond issuing can be seen is in the case of a corporate acquisition funding operation. With this, acquisition funding is certainly employing a bank loan supported by a series of financial institutions – also known as the bridge to bond loans. This name resonates with their short-term nature to be canceled and refinanced after the acquisition is finalized in the longer-term bond market.

These value-added fusions are evidence of the extent to which financial disintermediation – reflected in the rush in popularity of the bond format in recent years – does not, by any means, proclaim the demise of bank funding.

Many top banks have a team of professionals who offer their customers the best possible financing advice, be it syndicated loans, fixed, bonds, or any instrument. The goal is to implement value-added integral and effective financing, optimizing the customer experience and maximizing results.

As you consider dipping your hands into syndicated loans, your next top consideration is choosing the right partner (arranger) to assist with the process – preferably an institution with successfully executed complex financing deals for customers across diverse sectors in Asia like DBS. Their capital position complements their syndication capabilities, allowing them to lead the market with competitive tailor-made solutions. Some of these transactions can typically be confidential or time-sensitive, such as acquisition bid financing and public markets-related financings.

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