A syndicated loan is nothing more than a special type of lending, which is characterized by the average maturity provided to borrowers by not one, but several banking institutions at once. This refers to the fact that there is a pooling of funds from these banking structures.
A syndicated loan is not recognized as a separate method of lending. In fact, it is only one of many forms suitable for both borrowers and lenders.
Syndicated loan, its forms
An important feature of this loan is that it is issued in very large amounts. In some cases, the loan amount can reach twenty million US dollars. For this reason only legal entities are entitled to receive it. Borrowers can be holdings, companies, large enterprises, various kinds of financial structures. Often, banks act as borrowers. There were cases when the state used it.
A syndicated loan takes several forms. Here are the main and most popular of them:
- shared. Its features are that it is issued simultaneously by several banks simultaneously, jointly fulfilling loan agreements. In this case, they can sell their participation in the transaction;
- club. The full financial resources are provided by the managing group of banks.
Syndicated loans are largely specific. Their main advantages are as follows:
- upon receipt, a certain schedule is drawn up. This schedule should be, first of all, convenient for the borrower. On it in the future and will be paid cash;
- the borrower can get a multicurrency loan. It is also worth noting that the currency can be changed at any time;
- all banks that take part in lending are in the same conditions. This means that debt costs can be markedly reduced;
- A special consortium group is being created. She draws up a package of documents, stipulates all credit requirements, identifies possible risks. All this reduces the time for obtaining a loan. The acquisition scheme itself is also simplified;
- as mentioned above, the size of the syndicated loan is very large. The amount that is issued with it cannot be issued by any individual bank. In some cases, large enterprises can take the funds necessary for further development and reorganization from only a few banks at once.
Of course, only banks specializing in this will participate in the issuance of syndicated loans. They are a kind of organized group that performs various functions. We are talking about the dominant, organizational, administrative functions. Payments are made through the administration bank.
All banks that participate in the issuance of such a loan have many advantages. The syndicate for financial banking institutions is convenient in that the risks of each of the banks individually are significantly reduced. It is important to note that the consortium, which was created by banks, is not permanent, but exists only within the framework of certain projects.
Before obtaining a syndicated loan, the borrower will need to determine in which banking institutions he would like to receive the necessary funds. Practice shows that in order to avoid all kinds of paperwork, and just for convenience, borrowers turn to those banks that they were advised by friends or to those with which they themselves had previously worked.
After the necessary checks and determination of the amount of the syndicated loan, a meeting is held at which representatives of all interested banks should be present. All conditions for further work are determined on it.