Many developing organizations, enterprises or even banks and the state themselves turn to loans for their needs. But the financial demand is too high for a single bank to issue a loan. Therefore, sometimes organizations resort to a syndicated or consortium type of loan.
A syndicated or consortium loan is a medium-term loan received by a borrower from several banks at the same time, a so-called formed syndicate or consortium of lenders. The borrower is usually a legal entity with whom the consortium agreement is concluded.
The parties to such an agreement are not only the recipient of the loan and the lenders themselves, but also the agent bank and the organizing bank.
The organizing bank performs the organizational role for the selected loan, and the agent bank takes on the role of accumulating and servicing the loan cash flows.
Usually, such a loan is used when the loan amount is too high (up to a million dollars) and one bank cannot issue it due to restrictions on the amount of its own funds and internal limits set by the Bank of Russia.
A syndicated loan is issued against security, which can be a guarantee, pledge or surety.
The term of such a loan often ranges from 1 to 5 years, but depending on the amount borrowed, the terms can range from 6 months to 25 years.
The legal entity-borrower itself chooses the banks, which subsequently form a consortium of lenders. The borrower negotiates with the lenders the required loan amount, interest rates, repayment terms and schedule, as well as other expenses related to the organizational commission, etc.
The recipient of the syndicated loan receives the following benefits:
- a consortium of creditors is involved in the execution of the entire package of documents;
- the terms of the issued loan are the same for all creditors included in the created consortium;
- due to the participation in the issuance of a loan of several banks, the borrower's need for a large amount of financial resources is satisfied.
