Loan Syndication and Agreement Provisions

 

Loan Syndication and Agreement Provisions- The international syndicated loan is a service having at least one lender present in the syndicate whose nationality is different from that of the borrower. The syndication technique is there to help the large size of the loans and a wide variety of banks providing the funds. Loan syndication is the process of including a group of lenders in funding different portions of a loan for a single borrower. Loan syndication several often happens when a borrower needs an amount too large for a single lender to give or when the loan is outside the range of a lender’s risk exposure levels. Thus, multiple lenders form a syndicate to provide the borrower with the requested capital.

Loan syndication is often used in corporate financing. Firms seek corporate loans for a variety of business reasons that include funding for mergers, acquisitions, buyouts, and other capital expenditure projects. These types of capital projects often require large amounts of capital that typically exceed a single lender’s resource or underwriting capacity.

A contract provision is a stipulation within a contract, legal document, or law. A contract provision often requires action by a specific date or within a specified period of time. Contract provisions are intended to protect the interests of one or both parties in a contract.

The system also helps banks avoid sovereign risk arising out of international lending. Lead banks assemble a management group of other banks to underwrite the loan. In a syndicate there are three levels of banks: (a) lead banks (b) managing banks and (c) participating banks.

Become Vskills Certified Commercial Banker. Learn the module “Loan Syndication and Agreement Provisions”. Try the free practice test!

Go back to Tutorial