CAF - Benefits

Benefits

Lowest Possible Interest Rates

Base rate of interest is the London Interbank Offered Rate (LIBOR). LIBOR is generally 2.00% to 3.00% lower than PRIME.
(See: Reference Section: LIBOR)

LIBOR is the base rate of interest at which banks offer to lend money to one another in the wholesale money markets of London.

A margin percentage is added to LIBOR to determine the borrower’s loan interest rate.
(See: Lowest Margins & Best Terms)

Typical margin over LIBOR is .50% (50 basis points). Lowest margin is .50% for top world banks that issue the guarantee.

Current 1-year LIBOR is approximately 2.78%.

Current 5-year fixed LIBOR is approximately 3.78%.

Floating loan interest rate is approximately 3.28%. (2.78% LIBOR + .50% margin over LIBOR = 3.28%).

5-year fixed loan interest rate is approximately 4.28%. (3.78% 5-year LIBOR + .50% margin over LIBOR = 4.28%).

For comparison, current U.S. prime rate is 6.00%. Many borrowers pay prime+2 or more and additional fees.

Based on the current LIBOR, a 5 year fixed rate CAF loan with equal payment of principal and interest would generate an "Effective Annual Rate" of approximately 3.44%, which would include the impact of the loan fee.

Lowest Margins and Best Terms

Margin is a “risk premium” reflecting the likelihood that a particular guarantee-issuer will fail to honor its commitment to pay the Lender's bank if the borrower defaults.

Financially stronger guarantee-issuers have lower margins (lower risk of failure) than weaker guarantee-issuers (higher risk of failure).

Guarantee-issuing banks generally have the lowest margins compared to other, non-bank guarantee-issuers.

LIBOR is quoted up to 1 year (See: www.bba.org.uk for current LIBOR quotations). The Lender provides LIBOR quotations from 1 year to 5 years.

Loan term up to 7 years fixed or floating rate (floating rate for 7 years or 5-year fixed LIBOR + 2-year extension at the then prevailing 2-year fixed LIBOR).

Floating Rate Adjustments

Floating rate adjustments can be made annually, semi-annually, or quarterly.

For annual rate adjustments: borrower’s loan interest rate = 1-year LIBOR + applicable margin.
For semi-annual rate adjustments: borrower’s loan interest rate = 6-month LIBOR + applicable margin.
For quarterly rate adjustments: borrower’s loan interest rate = 3-month LIBOR + applicable margin.

Borrower may initially select any of these adjustment periods.

Repayment and Use of Proceeds

Simple interest - Not compounded interest.

Repayment at semi-annual interest “in arrears” or other mutually agreeable repayment schedule.

“In arrears” means payment at end of each 6-month period - or other periodic repayment term - not at the beginning.

Borrower may utilize its own custom-crafted repayment schedule subject to lender approval.

Borrower may receive front-end grace period up to 2 years, with no payments of principal or interest due during the grace period, subject to lender approval.

Loan principal amount is due in full at end of loan term. Possible extensions are available.

Convenience and Flexibility

No loan covenants or restrictions on the borrower’s use of proceeds.
(See: Covenants and Restrictions)

Possible loan extension and no-prepayment penalty subject to lender approval.

No advance loan fees, ever.

Applicable loan fee is always withheld from loan proceeds when disbursed. The loan fee is never paid before disbursement of proceeds.

No interference by the Lender in the borrower’s operations.

Full disbursement of proceeds without holdbacks or progress payments.

Loans in U.S. Dollars or Euros at borrowers preference.
(See: www.xe.com for foreign currency conversions)

Covenants and Restrictions

Covenants and restrictions are specific terms and conditions that appear in the loan agreements of every “Traditional Commercial Lender,” including commercial banks, investment banks, venture capital firms, and commercial finance lenders. Loans from Capital Access Financial have NO covenants and restrictions.

These traditional commercial lenders require borrowers to comply with covenants and restrictions that severely limit the use of loan proceeds to precisely defined purposes and schedules.

Traditional commercial lenders use covenants and restrictions to reduce their risk of default, their risk of loan loss, and to prevent borrowers from allocating loan proceeds in a manner that they believe will impede or impair their repayment.

Violating covenants and restrictions can result in progressively more costly financial penalties, the imposition of additional covenants and restrictions, the demand for full and immediate repayment of the loan, and business and/or financial losses causing irreversible and irreparable damage to the borrower.

In fact, there are notable examples of major U.S. company failures due to an inability to comply with covenants and restrictions.

Covenants and restrictions empower the lender to stand over the borrower’s shoulder, in essence, and dictate how and when the borrower can use the loan proceeds.

CAF’s Loan Agreements DO NOT contain covenants and restrictions.

The guarantee, that CAF requires, irrevocably and unconditionally assures the repayment of principal and all due interest at all times during the loan term, negating the need for covenants and restrictions.

Since the Lender is fully secured and has no risk of loan loss, there is no interference in the borrower's business operations.

The absence of covenants and restrictions also promotes enhanced financial agility and reduces the borrower’s costs of monitoring compliance.

The following are typical of the covenants and restrictions imposed upon the Borrower by traditional lenders:

Maintenance of Special Books and Records, Reports and Notices including Annual Financial Statements, Quarterly Financial Statements, Notice of Default, ERISA Reports, Notice of Litigation, Notice of Material Adverse Effect, Notice of Environmental Proceedings, Regulatory and Other Notices, Adverse Action Regarding Required Licenses, Notice of Certain Changes, Available Amount Reports, Appraisals, Filings and Reports, Additional Information, Maintenance of Existence and Qualification, Compliance with Legal Requirements and Agreements, Compliance with Environmental Laws, Taxes, Insurance, Title to and Maintenance of Properties, Inspection, Required Licenses and Permits, Compliance with ERISA Laws, Financial Covenants including Leverage Ratio, Tangible Net Worth, Current Ratio, Net Tangible Assets to Total Liabilities, Fixed Charge Coverage Ratio, Net Working Capital, Appraised Property, Title Insurance Endorsements, Production Cutback, Anti-Money Laundering, Additional Collateral, Borrowing, No Other Businesses, Liens, Sale of Collateral, Liabilities of Others, Loans, Mergers, Acquisitions, Business Form, Investments, Transactions with Related Parties, Dividends, Change in Fiscal Year, Leases, Principal Payments, and Anti-Terrorism Law.

The above listing is only a display of the principal categories of covenants and restrictions that appear in typical commercial loan agreements. There are usually many pages of legal language describing these covenants and restrictions in detail.

Moreover, lenders impose additional covenants and restrictions based upon circumstances unique to the borrower, including, but not limited to, Maintenance of Minimum Bank Deposit Balances.

The overall negative impact of covenants and restrictions can result in substantial opportunity costs to the borrower, often in the millions of dollars. Click on this link below to see the potential impact Covenants and Restrictions can have on a borrower.
L.A. Times article illustrating the potential impact of Covenants & Restrictions