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A banque d’affaires is a type of bank or other financial institution that provides services that are very similar to those offered by a merchant bank. The term is usually associated with French institutions that offer merchant bank services. Among those services are lending options for various types of organizations and providing financial advice to corporations in regard to selected financial options and events.
While a banque d’affaires does provide lending to businesses and other types of organizations, the process used to extend that financing various somewhat from other banking institutions. Typically, the debt is sold to a third party shortly after the loan is granted. Selling off the debt as an asset to investors has the benefit of allowing the banque d’affaires to avoid committing its own resources for extended periods of time. Assuming that market conditions as conducive to selling the debt, the banque stands to continue earning a profit while the debtor pays off the loan balance directly to the new investor.
In a sense, a banque d’affaires can be viewed as providing intermediary services to both investors and organizations that require an infusion of cash. By matching the needs of the loan applicant with the interests of an investor, the banque brokers the deal between the two parties, and functions as the mechanism for establishing the loan. Once the loan is approved and extended to the debtor, the loan is sold to the investor, allowing the banque to move on to the next business transaction.
When servings in an advisory capacity, a banque d’affaires may provide such services as project assessments, essentially aiding a company in determining if a given project is likely to generate the type of return desired. Financial institutions of this type also often provide services related to the issuing of initial public offerings or IPOs, as well as functioning as an intermediary on acquisitions taking place between two companies. In exchange for providing these types of services, the banque d’affaires will often collect some type of commission, payable at specific points during the process.
There are situations in which a banque d’affaires will choose to utilize its own resources to structure some type of financing for a business. While this is more likely to occur with short-term financing, there is also the possibility of the banque extending long-term financing and holding onto that debt asset for the duration. Should the officers of the banque d’affaires see specific benefits from retaining the debt as opposed to selling it to an investor, they may approve the loan with the express intention of providing the financing and managing the asset until the debtor settles the balance in full.
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