Loan Syndication is the process where a bunch of banks and lenders fund various fragments of a loan of an individual borrower. Loan Syndication happens when a borrower requires a loan amount which is too big for a single bank to provide. Thus, a bunch of banks come together to form a syndicate and provide the necessary loan amount to the borrower.
There are 3 stages of loan syndication process. We will list down each of them below:
The first stage of the loan syndication process is the pre-mandate stage which is initiated by the borrower. The stage involves the borrower either liaison with a single lender or inviting competitor bids from multiple lenders. The borrower has to mandate to the lead bank. After the lead lender has been chosen, they will start the appraisal process. The lead bank will see to the needs of the borrower and will design a loan structure for the borrower and develop a credit proposal.
The next stage involves the lender placing the loan and disbursement. The lead lender initiates selling the loan at the marketplace for which it will prepare an information memorandum, term sheet, and a legal documentation. The lead bank will then approach other banks for participation. Once the loan contract is finalized, the loan amount is disbursed.
The final stage is the post-closure stage which involves monitoring through an escrow account. Escrow account is nothing but the account in which the borrower will deposit the revenue. It’s the agent’s responsibility to ensure that the repayment of loan is the top priority and the payment is done before making payments to any other parties. In the post-closure stage, it’s the job of the agent to manage the operating and running of the loan facility on a regular basis.
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