Home Banking & Finance Syndicated loans can finance large projects and help midsize companies grow

Syndicated loans can finance large projects and help midsize companies grow

There are instances in commercial lending when the capital needs of a borrower are too big for a single bank to finance. When this happens, a group of lenders come together to form a syndicate, which then provides loans to a single borrower. 

Traditionally, borrowers have been large corporations or government entities who need funds for takeovers, mergers and acquisitions, expansion and infrastructure projects, real estate development and business operations. In recent years, however, mid-sized companies have leveraged syndicated loans to gain access to more capital and to simplify the documentation process of applying for multiple loans. As a result, syndicated loans have developed into a sound financing vehicle for a wide range of midsize businesses.


Loan syndications are often driven by the lead bank’s capital considerations. For example, if the lead bank would exceed an exposure limit if it financed the whole loan, it would likely look to form a syndicate. For those lenders who join the syndicate, the primary motivation is often to achieve greater diversification in their loan portfolio and to develop a relationship with the borrower.

Syndication is also part of the borrower’s financing strategy, as it offers access to multiple banks, which helps them build new relationships and can make it easier and more cost-effective to raise money.

When securing a syndicated loan, borrowers enter into a single credit agreement with the syndicate but have contractual obligations to all lenders. Borrowers interact with the syndicate primarily through the lead bank, often referred to as the administrative agent, or just agent. The agent acts on behalf of the syndicate. 


For borrowers, syndicated loans have a number of benefits. In addition to providing your organization with access to more capital, it can help you improve the financial health of your company by rationalizing your balance sheet, securing financing at better rates with lower administrative costs, obtaining more flexible credit terms and improving liquidity. A syndicated loan can also help bring efficiency to your treasury and accounting departments, as you can reduce the time spent negotiating multiple loans and decrease administration.

The advantage for lenders are also numerous and include sharing the risk of the loan across the syndicate, participation in the transaction at a desired level, new client acquisition and confidence that lenders’ interests are being protected. 


While your loan will involve multiple lenders, your organization will benefit by working primarily with the agent bank. Your agent is responsible for working with you to structure, market and document the loan. It will invite other banks to participate in the syndicate. Most agents solicit the borrower’s input regarding which banks to invite. When all documentary conditions are met, the agent will gather funds from participating lenders and disburse funds to the borrower. 

Participating lenders often require additional business with the borrower to meet relationship profitability hurdles. Generally, this is a collaborative process involving the borrower, participating lenders and the agent bank. Be prepared to spend time with the agent and participating banks regarding this issue.


You will need to provide the lead bank with the same information needed for a single-bank loan. In general, this includes historical financial information, projected financial performance, a business plan and other relevant information on your business.

The agent will take the information you provide and create a confidential information memorandum, or CIM. The CIM succinctly describes your loan request and provides much of the information participating lenders need to approve the loan. Creation of the CIM is generally a collaborative process between the borrower and the agent.

In most cases, the agent bank and borrower will host a bank group meeting. Its purpose is to efficiently communicate important information to participating lenders and to give them an opportunity to meet the borrower’s management team. At the bank group meeting, the agent will outline the details of the loan request and management will discuss the business. 

If you have more questions regarding syndicated loans, talk with your bank. In general, if you need more capital than your lender can finance on its own, a syndicated loan may be the right solution for you. 

Joseph Markey is president of KeyBank’s Hudson Valley and Metro New York market. He maintains an office in Key’s Tarrytown headquarters and may be reached by email at jmarkey@key.com.



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