What are syndicated loans?
Uses and meaning of syndicated loan
A syndicated loan, also called a syndicated loan, is issued by a specific group of lenders. The majority of these are commercial and investment banks involved in structuring, managing and organizing the allocation. In some country, the syndicated loan market is very important. A syndicated loan is granted by several banks to a borrower as a single loan. A bank takes over the management within this banking business, which is why the term syndicated loan is appropriate.
Reasons for joint lending
But why are several banks granting a single person a loan and why can not a single bank do that? In fact, the reason here is the amount of credit. It is so much money that a single bank can not afford this sum to make it available to the customer. Of course, this is accompanied by enormously high demands on the minimum equity investment. Another reason is that a single bank might be able to raise the sum, but this does not want to because of the existing risk. Because a high loan amount always means a big risk.
Who receives syndicated loans?
In fact, individual individuals do not simply receive such high credit that they can not be granted by a bank. As a rule, large companies or public institutions use such a loan. With the money then usually large investments are made. This fact is not insignificant for the bank, even in the area of collateral.
Risk distribution at the lending banks
The lending banks share not only the credit itself, but also the associated risk. Of course, any losses incurred are shared, so that a loan default only has to be borne in part. It is important that the existence of the bank should not be jeopardized by a single loan. Predominantly in the euro market, this type of lending is increasingly used. The repayment term here, like all other loans, is between 2 and 10 years.