Loan - simple financial instrument? Easy to manage?

Loan - simple financial instrument? Easy to manage?

Initially loans can be described as simple in their basic structure. Lender and borrower, term, interest, and repayment. Of course, all those who deal with the matter know that all the previously mentioned parameters of the loan can have variations. One or more lenders or borrowers, variable or fixed terms and interest rates, which can also be linked to an index or other measure. Different repayment options make it even more complex. Add to that different payment and fixing conventions, etc....

The classic annuity loan or bullet loan with a fixed interest rate and repayment at the end of the term (plain vanilla) are rather the exception in the corporate environment these days. Loans are adapted to the needs of the borrower and the variations seem almost endless.

Standard variants should be created with just a few clicks, the payments due should be calculated up to the end of the term, recorded as expected cash flows and the payment files generated for the future. But how does the recording of complex loan structures work in a Treasury Management System (TMS) and what support can the TMS provide? We have picked out three examples for this purpose:

1. 15-year loan with 5 years fixed interest rate

Term: 15 years

Amount: 10.000.000,- EUR, repayment 625.000,- EUR p.a. Interest rate 5 years fixed: 0.5% p.a. thereafter 1M EURIBOR , margin 1% over the entire term.

For a loan of this type, it is no problem to represent the first 5 years of the term. The interest rates are fixed and therefore easy to calculate. But the influence of the variable interest rates to be expected after expiration on the long-term liquidity planning should also already be presentable. Here we make use of the data offered by the connected information systems and have chosen the 1 month EURIBOR. The data is automatically plotted on the current curve and directly integrated into the interest calculation. This means that long-term liquidity planning is already secured and retrievable for these values as well. In case of changes in the interest rate curve, the data are adjusted and flow into the new liquidity calculations.
The entry of the loan is done with a few mouse clicks, the calculated cash flows are created and included in the liquidity planning for the first 5 years. With the creation of a second pattern, the parameters can be entered after the fixed interest agreement expires.

Screenshot mit Bearbeitungsfenster

Screenshot mit Tabelle

corima uses the yield curve to calculate the expected interest and repayments until the maturity. If the yield curve changes, the calculations are performed again and the results are automatically adjusted down to the planning cash flows. In this way, liquidity planning always remains up to date for the entire term of the loan.

2. Construction progress loan

Term 7 years, EUR 10 million, payment in 4 tranches.

No matter what you build or create, it can sometimes take a long time and requires financing in stages. For example, the construction of a new factory building or an administrative building starts with the purchase of the land and the construction is paid for according to individual specified stages of construction. The construction of plant or machinery can also be paid for and financed in stages. These payment steps can be easily edited and then look like this:

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Screenshot mit Tabelle

Once the interest rates, margins, maturity, etc. have been recorded, the following overview of the cash flows from the first payment installment to final maturity is obtained:

Screenshot mit Tabelle

All cash flows are of course immediately incorporated into the liquidity planning.

3. Loan with interest deferral option (capitalization of interest)

Sometimes it is not at all expedient or desirable to pay the interest due from current cash flows. This is when loans with interest deferral or capitalization options come into play. Here the main focus is on the option. The debtor decides from interest payment to interest payment whether to pay or capitalize the interest.

First, the necessary parameters are entered in the input mask …….

Screenshot mit Bearbeitungsfenster

….. then an overview of the cash flows is automatically created, in which each individual interest payment can be edited in advance or up to the day of payment …………

Screenshot mit Bearbeitungsfenster

…. which has, for example, such a bullet result by the end of the term:

Screenshot mit Tabelle

The flexible handling of the interest payment until the day of maturity ensures an individual control of the cash flow and the capitalization of the interest, if this corresponds to the agreed credit line.

Challenge us!

All loans shown here take place daily in the portfolios of our customers. The illustrations are based on sample calculations in a separate version of the software. All illustrations shown here are shortened for better illustration. The number of parameters that can be displayed is sometimes many times higher, depending on the loan form.

We believe we can calculate, edit and present any loan. Do you have a loan form that causes you headaches in your daily work? Send us the parameters and conditions, of course in a modified exemplary form, and we will send you our results. Mailto: sco@copsgmbh.com.