Written by:
Image
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades.

Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

View all posts
Updated September 30, 2020

What is Loan Syndication?

Loan syndication is a lending process in which a group of lenders provide funds to a single borrower.

How Loan Syndication Works

When a project is unusually large or complex, it may exceed the capacity of a single lender. For example, the amount of the loan may be too large, the risks too high, the collateral may be in different locations, or the uses of capital may require special expertise to understand and manage it. In these cases, a financial institution may bring other lenders into the deal. 

Usually, the loan syndication limits the liability of each lender to its share of the loan interest. In this way, each lender limits its loan amount to a manageable size and limits its risk exposure. Additionally, each lender may have a collateral interest in a unique or specialized asset from the borrower, such as a piece of equipment.

Loan syndications involve a large amount of coordination and negotiation. Typically, loan syndications involve a lead financial institution, or syndicate agent, which organizes and administers the transaction, including repayments, fees, reporting and compliance, and loan monitoring. Often, such transactions require the services of a specialist who syndicates the loan on behalf of the borrower; identifying lenders while negotiating terms and conditions, and even representing the borrower throughout disbursements. Loan syndication fees can be expensive, ranging from 5% to 10% of the loan principal.

Why Loan Syndication Matters

Loan syndications can be a useful tool for banks to maintain a balanced portfolio of loan assets among a variety of industries. If one loan is too large, it may overweight the bank's portfolio. Therefore, banks may pursue a syndication to accommodate a loan and keep its portfolio in balance.

At the same time, loan syndications may incur a large expense to the borrower. While the syndication fee is usually financed, the burden of repaying the loan and syndication fee is shouldered ultimately by the borrower.

Ask an Expert about Loan Syndication
At InvestingAnswers, all of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Loan Syndication.
Be the first to ask a question

If you have a question about Loan Syndication, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Loan Syndication, then please ask Paul.

Ask a question Read more from Paul

Read this next

Paul Tracy - profile
Ask an Expert about Loan Syndication

By submitting this form you agree with our Privacy Policy

Share
close
Don't Know a Financial Term?
Search our library of 4,000+ terms