Unfortunately, all too often, borrowers (entrepreneurs, developers, project sponsors/owners etc) are glad to finally receive terms of a capital placement from a traditional capital source even though the terms do not suit the specific transaction. The result of the aforementioned is that the transaction risk is increased, liquidity constraints arise within the transaction and the borrower’s potential for growth is restrained.
The Oncidium Capital difference.
Oncidium Capital approaches transactions with a contrarian methodology that has served them well over the last decade. They take the necessary steps to be assured that the capital is “clever capital” and that the borrowing terms are a suitable fit for the specific borrower’s capital requirements whilst still working within their specific portfolio’s mandates.
The main initial considerations are, by not limited to, include:
- Does the sector and transaction suit the portfolio at the time of being presented the transaction?
- Can the Oncidium Capital team add value? The team includes legal, structuring, finance professionals and third-party consultants that are specialists in the specific sector.
- Reviewing the medium to long-term needs of the borrower, factoring in growth potential, company registration and structures for fiscal efficiency, favourable taxation rates, reviewing double taxation agreements (DTA s) and internal cost savings.
- Provide a contingency over and above the capital requirement to factor in any currency, material, or commodity fluctuations, inter alia.
- Review the growth of the specific transaction’s sector globally. This is done both globally considering export and demand in the specific geographic location.
- Reviewing key individuals involved in the transaction and their expertise and history.
Bespoke facets that are included in the terms to minimize risk and be assured of sustainability and liquidity are:
- The most cost-effective and suitable term of the facility for both Oncidium Capital and the borrower.
- Provide a deferred repayment period. This period allows the borrower to commence implementing capital without the concern of repayments. This avoids the capital lent being used to service the loan.
- The interest rate. Is the borrower able to meet the repayments out of profits and be assured of surplice liquidity in the financial model?
- Cost-effective underwriting costs. Around 90% plus of the underwriting costs are covered by the portfolio, depending on the portfolio's risk appetite or specific transaction.
- Internal professional fees are generally covered by the portfolio and factored into the interest rate. To reduce costs, Oncidium Capital has a team of internal legal professionals with considerable experience including senior counsel. Third-party consultants required to provide reports for due diligence processes charge reduced rates as they are assured volumes of work.
UNLIKE Oncidium Capital, traditional finance companies require the borrower to cover all or most of the professional fees. Many of these fees are exorbitant as legal work is done by external counsel charging hourly rates. With complex transactions legal and due diligence fees can cost up to or between $400 000-$700 000.