Let us start by defining the term. Debt Syndication is defined as a process which involves breaking up a big loan into many small loans of various proportions and to involve multiple lenders to fulfill it. So, from a lender’s perspective, if the borrower’s requested credit is too large, then the lender can decide to go with a syndicated loan to maintain a low-risk level.
The lender who initiates a syndicated loan becomes the primary lender. They are tasked to carry out all the due diligence and prepare a report. The primary lender then shares the details of the broken up smaller loan with other lenders along with the due diligence report for them to process and disburse the requested broken up the smaller loan.
As you now see, there are three main parties involved viz., the borrower, the primary lender, and other lenders. To manage all the communications and to maintain transparency, it is preferred to have a dedicated risk manager, who will oversee everything about the syndicated loan starting from the initiation, disbursement, repayment, issues, etc. S/he acts as a single point of contact between the borrower, primary lender, and the other involved lenders.
Advantages of a Syndicated Loan:
For lenders:
- The risk of the bigger loan is managed very well within the limits of the primary lender and other involved lenders.
- The liability is shared among lenders depending on the size of the loan they have disbursed.
- The borrower’s collaterals are easily assigned to all the involved vendors.
For borrower:
- Usually has a single syndicated loan contract.
- Get’s the required big loan.
So, if you are a lender who wants to initiate a syndicated loan, we offer a bunch of tools to assist you. Visit Resurgent India to explore more.
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