Syndicate Loan

What is a syndicated loan?

In practice, a syndicated loan is something that is rarely offered to small or mid sized businesses, but it important to understand the terminology in order to acknowledge what you need and don’t.

Syndicate Loan

When you borrow money from a bank the bank is also making a transaction to you. They are exposing themselves to credit risk and the risk that you can default and not pay them back. Some banks are willing to take that risk to a certain limit but not beyond that threshold. If you are looking to borrow in excess of the amount a bank wants to lend a syndicated loan may be the answer.

With a syndicated loan there will be one bank that loans a certain percentage of the loan amount while other banks in the same agreement lend other amounts. The amount you receive is the total that the banks are willing to extend. This is different than simply taking it a second loan as most loans will limit your ability to take a second loan and in a syndicated loan the various banks all have same liens on your assets.

Since small or mid sized companies are often unable to borrow very large amounts, these loans rarely go into syndication except when they are buying a competitor or looking to quickly expand.