12-29-2009, 11:01 PM
Loan syndication is the process of involving several different lenders in providing various portions of a loan.Mainly used in extremely large loan situations, syndication allows any one lender to provide a large loan while maintaining a more prudent and manageable credit exposure because the lender isn't the only creditor.
if a company wants a huge amount as a loan for expansion or any other purpose, say when Reliance or ITC wants money, loans are got from the banks. But generally, its got from a single bank and that single bank alone shares the risk. Take the case of funding a rocket launch - if the launch is a failure, then the bank which funds for it may become bankrupt. But in syndication, many banks come together and fund a single project, hence sharing the risks. This also assists in getting competitive interest rates for the banks. Generally, when a group of banks get together, they select a lead bank which handles all the dealings with the company, such as negotiating the interest rates, and hence a deal is signed between the company and the banks. Loan syndication is basically done to share the total loss or liability.
if a company wants a huge amount as a loan for expansion or any other purpose, say when Reliance or ITC wants money, loans are got from the banks. But generally, its got from a single bank and that single bank alone shares the risk. Take the case of funding a rocket launch - if the launch is a failure, then the bank which funds for it may become bankrupt. But in syndication, many banks come together and fund a single project, hence sharing the risks. This also assists in getting competitive interest rates for the banks. Generally, when a group of banks get together, they select a lead bank which handles all the dealings with the company, such as negotiating the interest rates, and hence a deal is signed between the company and the banks. Loan syndication is basically done to share the total loss or liability.
