Eurocredit
loans are
floated with a
benchmark rate such as the
London Interbank Offer Rate (
LIBOR) and are generally less
expensive than
domestic loans. The primary difference between a Eurocurrency loan and a Eurocredit loan is the
maturity. In many instances, both types of loan require more than one
lender. These lenders form a group known as a
syndicate. The syndicate has a leader who arranges the loan and does the paperwork and receives a fee for this service. This
fee is generally .25 - .5% of the loan and should be included when calculating the total cost of the loan.
The Eurocurrency, Eurocredit and Eurobond markets have developed to give MNCs an opportunity to obtain financing at rates lower than they can get in their home countries. Companies can receive these lower rates because the lenders have no Federal Reserve requirements, and the lenders face increased international competition for these loans and the subsequent increased investment that accompany them. Any funds that are deposited as Eurocurrencies can then be loaned out as Eurocurrency loans, Eurocredits or Eurobonds.