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Loan Guarantee Fees or Compensation

Looking for typical guarantees fees or compensation terms offered to an unaffiliated accredited investor to guarantee a $500,000 line of credit for an LLC. Bank will require collateral.

If its a % of loan guaranteed, what is typical? When collateral is posted in the form of LCs or CDs, any ideas of those terms?

Answers

Topic Expert
Linda Wright
Title: Consultant
Company: Wright Consulting
(Consultant, Wright Consulting) |

It has been a while since I looked at this sort of market, but if you are collateralizing at face, I do not see why you should pay more than double digit bps for a guaranty as well. The banks may also ask for personal guaranties, which I used to ask for, but personally would avoid.

Alan Brown
Title: Presidnet
Company: MIDCAP LTD
LinkedIn Profile
(Presidnet, MIDCAP LTD) |

I was not clear in my question. The Investor is providing the guarantee in the form or collateral (LC or posting a CD) to the bank for its loan of a LOC to a business the Investor does not own. No other guarantee. The risk is reasonable, as the business needs the LOC primarily for seasonal reasons.

James Duke
Title: Director
Company: ELAINT
LinkedIn Profile
(Director, ELAINT) |

If the guarantee is collateralized at 100%, I'd say the maximum to charge would be 1% or less and you also need to know the cost of the l/c issuance and who will bear that cost.

Alan Brown
Title: Presidnet
Company: MIDCAP LTD
LinkedIn Profile
(Presidnet, MIDCAP LTD) |

James, to be sure I understand your answer, are you saying that an investor will likely agree to a 1% return ($5,000 payment by the company) for providing $500,000 of collateral to a bank which will fully guarantee a company loan from the bank?

Robert Honeyman
Title: CFO
Company: Advanced Predictive Analytics
(CFO, Advanced Predictive Analytics) |

How long will the bank have to hold on to the collateral? This seems like a high risk loan on the part of the investor. Junk bond yields are in the 7% neighborhood. I'd use that as a benchmark.

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