The process of involving several different lenders in providing various portions of a loan. Loan syndication most often occurs in situations where a borrower requires a large sum of capital that may either be too much for a single lender to provide, or may be outside the scope of a lender's risk exposure levels. Thus, multiple lenders will work together to provide the borrower with the capital needed,at an appropriate rate agreed upon by all the lenders.
In a syndicated loan, two or more banks agree jointly to make a loan to a borrower. Every syndicate member has a separate claim on the debtor, although there is a single loan agreement contract. The creditors can be divided into two groups. The first group consists of senior syndicate members and is led by one or several lenders, typically acting as mandated arrangers, arrangers, lead managers or agents.6 These senior banks are appointed by the borrower to bring together the syndicate of banks prepared to lend money at the terms specified by the loan. The syndicate is formed around the arrangers – often the borrower’s relationship banks – who retain a portion of the loan and look for junior participants. The junior banks, typically bearing manager or participant titles, form the second group of creditors. Their number and identity may vary according to the size, complexity and pricing of the loan as well as the willingness of the borrower to increase the range of its banking relationships.
Given below the chart will explain the things very easily by taking an example:
1. Term Loan Syndication
Term loan are provided for acquiring or constructing or installing or establishing capital assets, which will provide returns over a period of time. Term loans will also be repaid in regular payments over a period of time, as the asset generates returns. Term loans are usually provided for acquiring or constructing building and acquiring or installing plant and machinery. Term loans in India are provided for a tenure of anywhere between 3 to 10 years based on the project, projected financials and other factors. The interest rate for the term loan will be based on the credit worthiness of the borrower and is usually a fixed spread over the banks base lending rate.
2. Working Capital Syndication
Working capital loans are provided for stocking inventory and/or providing credit to maintain a healthy working capital cycle of a business. Working capital loans can be divided into two major categories, fund based and non-fund based. Fund based credit facilities such as cash credit facilities can be used by a business like cash for purchasing or stocking inventory and other items needed for operating the business. Non-fund based limits on the other hand are guarantees given by the bank based on the credit-worthiness of the borrower. Non-fund based limits such as Letter of Credit allows the borrower to purchase or stock inventory on credit terms from the supplier.
3. Loan against Property
You may have a lot on your mind when it comes to sending your children for education abroad or maybe finance your business or even finance your child's wedding. The first thing that would come into the mind of most of us is, 'Where would I get the money from?
There are many ways you could arrange for money, and one of those ways is taking a loan. You could take a personal loan for the amount required, or you could take a loan against your property.
What is a loan against property?
A loan against property (LAP) is exactly what the name implies -- a loan given or disbursed against the mortgage of property. The loan is given as a certain percentage of the property's market value, usually around 40 per cent to 60 per cent.
Loan against property belongs to the secured loan category where the borrower gives a guarantee by using his property as security.
What purposes can I take a loan against property for?
Loan against Property can be taken for following purposes:
- Expanding your business
- Getting your son/daughter married
- Sending your son/daughter for higher studies abroad
- Funding your dream vacation
- Funding medical treatments
What kind of properties can I mortgage for a loan?
You can normally take a loan against your self-occupied or rented residential property. This could be a house or even a piece of land.
What are the eligibility criteria to get a loan against property?
These criteria will vary from one bank to another. However, from all the host of factors, the common factors that all banks look at are:
- Your income, savings, debt obligations
- Cost/value of the property mortgaged
- Your repayment track record for other loans, credit cards, etc.