Sorry to be so long in responding to your inquiry regarding the $4.0MM; I had wanted to get some specific information on that credit, but got tied up with other things and was unable to do so. In any event, I will comment on the two points raised; that regarding collateral and that regarding pricing.
A loan secured by "substantially all assets" means that a General UCC Filing was done, this is normal, usual, 100% correct, and is simply the way it done. The wording would be something to the effect that a security interest is taken "in all assets, unless otherwise encumbered, now owned or hereafter acquired." Subsequent creditors can come along and do General Filings, taking second, third, fourth, place and so on. If they were to finance a high value computer system, the creditor would do a specific UCC Filing on the computer equipment and do another General Filing, taking second position. A General Filing is almost ALWAYS done on any credit of size. This is real basic stuff folks.
The loan rate of 11.5% is Prime + 2, this is not usurious or unusual. A longer term fixed-rate facility is ALWAYS more expensive than a short-term or variable rate facility simply because it costs more to fund. The lender has to go out in the money market and buy five year money to fund the loan. You can't fund long-term credits with less expensive short-term money, simply because you don't know where rates are going to go over the next five years and you are committed to funding the loan at a fixed rate. This is a simple explanation, but that's essentially how it works. An additional factor that would add to the cost of this credit is the interest only feature. This adds risk to the lender in that the entire principal balance may be outstanding for the full term of the loan. Were periodic principal payments required, the risk would reduce over time and this would be reflected in the loan pricing. Generally, the most credit worthy borrowers borrow at Prime and TAVA is not IBM or Ford. The lender has to be compensated for the higher risk. There are other factors, and I can go on and on, but I think this should suffice. As TAVA's business fundamentals improve, it will be able to avail itself of lower cost credit facilities; but, for where it is right now, this is just about right and is nothing out of the ordinary.
Both of these issues, particularly the first one, that's a real no-brainer, are very basic. Anyone who would raise an issue over them either has no understanding of the basic fundamentals of business finance, or does understand business finance and is trying to con those who do not. You can make your own decision as to in which catagory this individual belongs.
I hope this helps. |
