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Loan Syndication Explained

Loan syndication involves a group of lenders providing funds to a single borrower for an amount that is too large for a single lender. The process begins with a borrower contacting a lead bank for a loan. The lead bank then works to design the loan structure and sells portions of the loan to other participating lenders. After closing, the lead bank monitors repayment through an escrow account, ensuring the borrower's revenue is used to first repay the loan before making other payments. Loan syndication allows borrowers to access large amounts of funding and enjoy varying interest rates, but the process of bringing multiple lenders onboard can be time-consuming and challenging.

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Anshika Panchuri
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107 views7 pages

Loan Syndication Explained

Loan syndication involves a group of lenders providing funds to a single borrower for an amount that is too large for a single lender. The process begins with a borrower contacting a lead bank for a loan. The lead bank then works to design the loan structure and sells portions of the loan to other participating lenders. After closing, the lead bank monitors repayment through an escrow account, ensuring the borrower's revenue is used to first repay the loan before making other payments. Loan syndication allows borrowers to access large amounts of funding and enjoy varying interest rates, but the process of bringing multiple lenders onboard can be time-consuming and challenging.

Uploaded by

Anshika Panchuri
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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LOAN SYNDICATION

by Anshika
Meaning

Loan syndication is a lending process in which a group of lenders


provide funds to a single borrower.
 Loan syndication most often occurs when a borrower requires an
amount that is too large for a single lender and greater than the
bank's risk tolerance.
Firms seek corporate loans for a variety of reasons including
funding of mergers, acquisitions, buyouts and other capital
Expenditure projects.
1. Pre-mandate Stage The borrower initiates the first stage. In this stage,
Process the borrower contacts a single lender or invites competitor bids from
multiple lenders. After the lead bank is chosen, the appraisal process
starts. The lead bank will look after the needs of the borrower and will
design a loan structure for the borrower. A credit proposal will also be
developed.

2. Loan Syndication This stage involves the lender placing the loan and
disbursement. The lead bank will prepare a term sheet, an information
memorandum, and legal documentation in order to sell the loan at the
marketplace

3. Post-Closure Stage This stage involves monitoring through an escrow


account. An escrow account is an account in which the borrower deposits
revenue. It is the agent’s responsibility to prioritize the loan repayment. The
agent also needs to ensure that the payment is made before making
payments to any other parties. It is the duty of the agent to manage the
running and operating of the loan facility on a regular basis
Advantages

It facilitates the borrowing of a large amount by


companies and businesses to fund big projects.

It reduces the effort of the borrower to arrange a large


sum of money.

Since multiple lenders are involved, It allows the borrower


to enjoy varying interest rates and different loan structures
Disadvantages

The process of bringing multiple lenders on board is a time-


consuming process, which may delay the project for which
funding is required. 

It may be challenging to satisfy every lender’s terms and


conditions. 
ICICI
Bank
Borrower 1000 crores Lead bank

company Project A
HDFC participants SBI
X Bank

Axis bank
Thank you

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