What Is a Syndicated Loan?

A syndicated loan, also known as a syndicated bank facility, is financing offered by a group of lenders—referred to as a syndicate—who work together to provide funds for a single borrower. The borrower can be a corporation, a large project, or a sovereign government. The loan can involve a fixed amount of funds, a credit line, or a combination of the two.

Syndicated loans arise when a project requires too large a loan for a single lender or when a project needs a specialized lender with expertise in a specific asset class. Syndicating the loan allows lenders to spread risk and take part in financial opportunities that may be too large for their individual capital base. Interest rates on this type of loan can be fixed or floating, based on a benchmark rate such as the London Interbank Offered Rate (LIBOR). LIBOR is an average of the interest rates that major global banks borrow from each other.

Purpose of term loans: 

• You can get this finance for equipment. 
• You can get finance for real estate. 
• You can get finance for working capital & etc. 

Types of term loan:

Based on the repayment term provided to the debtor, there are two types of term loans: 

Intermediate: The intermediate term loan is the run which runs for less than three years. Now, the repayment of this type of loan is done through either the cash flow of the company or using balloon payments.

Long term: The long term loan has the term of 3 to 25 years and requires the company to put forward their assets for collateral in addition to repaying monthly or quarterly payments either through cash flows or profits.  

Advantages of term Loan:

• This type of loan is considered to be cheaper. 
• They are negotiable
• Due to the addition of collateral, there is not a huge risk for the bank or NBFC for loss.