A syndicated loan is the capital lent to one or more borrowers by more than one lender.
In other words, a syndicated loan is one that is lent by one or more financial entities, in such a way that they share the risk of lending and facilitating money to the same or several borrowers.
This type of loan is usually associated with large companies, since one of the fundamental characteristics is that they are large-scale loans , and whose size is not assumed by capacity or by risk decision by a single financial institution, but rather by several entities come together to face credit. The characteristics of this type of loan are usually:
- They are various lenders. As we said, several entities usually appear that lend money to the same individual. The word syndicated means grouping, and it is the denomination that obtains those loans in which there are more than two agents, it is not a 1 to 1 relationship. In any case, there is always a responsible or leading bank, called Agent Bank, which is in charge of collecting, negotiating and managing the loans between the rest of the lenders and the borrowers, serving as an interlocutor and negotiating the clauses, since otherwise, if the borrower had to negotiate a loan for each party, it would not be of a syndicated loan, but a set of independent loans.
- The borrower is always a legal entity,be it a single company name or a whole business group. This type of loan is not granted to individuals or small companies, so the size it reaches is only suitable for large corporations .
- Large amounts. The amounts of this type of loan are high due to the fact that they are usually used as investment tasks, that is, to raise financing to face projects or purchases from other companies. It is also often used as refinancing measures when a heavily indebted company makes structural changes.
- They are long-term and investmentloans . Depending on the negotiation, they usually have returns slightly above the market, since the entities face a great risk of lending high volumes of money, therefore they demand a higher interest. Similarly, they are large loans that take time to repay, so they take on a long-term nuance.