What is Capital Market Financing?
Capital Market Financing is typically not a financing structure that most community bankers have the expertise nor the access to create. In a competitive marketplace due to wholesale and institutional rates larger credits are typically structured using the capital markets. Known as an off balance sheet transaction capital market financing was first developed in 1981 in response to chaotic conditions and high rates in the long-term market.
MSRB & SEC Regulated: Capital Market Financing is regulated by the Municipal Securities Rulemaking Board (MSRB) and was established by the United States Congress in 1975. MSRB is a self-regulatory organization that is subject to supervision by the Securities and Exchange Commission (SEC). MSRB is a regulating body that creates rules and policies for investment firms and banks in the issuing and sale of capital market products including the sale of municipal bonds, notes and other municipal securities by states, cities and counties. Activities regulated by the MSRB include the underwriting, trading and selling of municipal securities financing public projects. MMC is a pioneer in Capital Market financing and introduced this type of financing to the Church, Christian School and College Market over 10 years ago.
Benefits to the Borrower:
- Lower cost of funds at wholesale or institutional pricing.
- Great structure for future financing needs
- No pre-payment fees
- Has the ability to customize the financing structure vs. more stringent conventional financing.
- With no balloons, the borrower does not have to go through the process of refinancing and have longer term banking relationships.
Regular bank lending is not usually classed as a capital market transaction, even when loans are extended for a period longer than a year. A key difference is that with a regular bank loan, the lending is not securitized (i.e. it doesn't take the form of resalable security like a share or bond that can be traded on the markets).
In the 20th century, most corporate finance apart from share issues was raised by bank loans. But since about 1980 there has been an ongoing trend for disintermediation, where large and credit worthy companies and corporations have found they effectively have to pay out less in interest if they borrow from the capital markets rather than banks. The tendency for companies to borrow from capital markets instead of banks has been especially strong in the US. According to Lena Komileva writing for The Financial Times, Capital Markets overtook bank lending as the leading source of long term finance in 2009.
The typical minimum financing in MMC Capital Market Financing structure is $3 million with no maximums.
If you have interest in MMC Capital Market Financing, please feel free to contact us.
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