loan syndication

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loan syndication

lending by a group. The size of some loans is so large that no single financial institution would possess either the resources or the inclination to lend the entire sum on its own. In such cases a syndicate of institutions is formed to provide the necessary funding. The syndication process starts when either a borrower approaches a bank and invites it to initiate arrangements for a syndication facility or when the bank itself approaches a corporate borrower that it believes is seeking funds. The bank (known as the managing bank) will then:
  1. (1) settle in outline with the company the financial and other terms on the basis of which the loan is to be promoted;
  2. (2) approach prospective lenders in the market and provide them with details of the proposed loan and information about the borrowers in order to enable a judgment to be made as to whether or not to participate; and
  3. (3) negotiate the details of the loan agreement with the borrower. Loan syndications, therefore, comprise two distinct sets of agreements: those governing the formation of and participation in the syndicate and those governing the relationship between the syndicate and the borrower, in effect, the loan agreement itself.