In the process of Loan Syndication Consultation in Indian Company, multiple lenders work together in order to provide various fragments of a loan instead of a single lender providing the whole amount to the borrower. It happens due to two reasons: the amount is high for a single lender to provide, the amount is beyond the scope of a lender’s risk exposure levels. The need for loan syndication usually arises when a borrower requires a large sum of capital.
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Advantages of Loan Syndication
- Loan terms can be reduced
- Best prices available to the businesses in sum total
- Syndicate banks share feedback on business issues
- Ensures great visibility of borrower in the open market
- Borrowers can choose among risk management techniques, multicurrency options and prepayment rights without penalty
3 Stages of Loan Syndication Process
Pre-Mandate stage is the primary stage of the syndication process. Potential borrower initiates the stage. The stage can either involve liaisoning with a single bank or inviting competitor’s bids from banks. Pre-mandate stage involves mandating to the lead bank by the borrower. After the lead bank gets selected and mandated by the borrower, the lead bank gets started with the appraisal process. The lead bank also analyses the needs of the borrower, design an appropriate loan structure and develops a credit proposal.
The 2nd stage in Syndication involves placing the loan and disbursement. Here, the lead bank initiates selling the loan at the market place. For this, the bank prepares a term sheet, information memorandum and a legal documentation. It further proceed towards approaching some selected banks and inviting participation. As agreed and finalized in the loan contract, the loans are then disbursed in phases.
The last or final stage is referred to post- closure stage which involves monitoring through escrow account. Escrow account is the account in which the borrower deposits his/her revenue. The work of the agent here is to ensure that the loan repayment is given due priority and the payment is done before making payments to any other parties. In the post-closure stage, the agent manages the operation and running of the loan facility on regular basis.