Getting a syndicated loan: What you need to know

When it comes to business financing, most companies are intimately familiar with traditional bank loans. Technically, they’re known as “bilateral loans” and involve one lender providing capital to one company.

But did you know that syndicated loans, which involve a group of lenders working together, can help your company do even bigger and better things? That’s especially true when you need more money than a single lender can provide or when your capital needs exceed a lender’s tolerance for risk.

There are many benefits to a syndicated loan. In addition to providing more capital than a sole lender can provide, a syndicated loan can help streamline your financing and allow you to access a greater pool of capital more efficiently. It can also be a precursor to larger capital-market transactions (e.g., bonds or IPOs).

It can also give you access to the full scope of banking products and services offered by the group of lenders you’re working with. Plus, it can help your company develop banking relationships that will be vitally important to your company’s future growth.

• Lead arranger: Your company will work closely with a “lead arranger,” which is sometimes referred to as the “lead left” throughout the process. This lender will work on the deal structure and run the syndication process. 
• Joint lead arrangers: Depending on the size of the loan, the process may also include lenders known as joint lead arrangers or “JLAs.” They tend to provide higher capital commitments and are other key relationships for the borrower. This tier of lenders will also be focused on pitching and securing ancillary bank business.
• Participants: Additional lenders may also commit capital to the deal.

These key milestones and deliverables can help you know what’s coming and what’s expected:

• For a typical corporate deal, the lead arranger usually structures the loan and determines the syndication strategy. This kicks off three concurrent work streams:
  • The lead arranger conducts underwriting and due diligence in a review for potential financial, reputational and legal risks.
  • The lead arranger negotiates the term sheet outlining the structure of the deal, including fees and expenses.
  • The borrower and the lead arranger prepare the marketing materials that will help investors arrive at a credit decision. The key documents may include, among others, one or more of the term sheet, financial model, lender presentation—also known as the “LP”—and the confidential information memorandum or “CIM.” The CIM often provides details on the company and its industry, current and projected financial conditions, general terms of the financing, and the syndication timeline. 
• The bank meeting takes place. During the bank meeting, the borrower will often share the company’s financial outlook with other potential lenders. Two critical next steps follow this meeting:
  • The lead arranger negotiates the credit agreement.
  • The participants start their credit approval process.
• The participants provide their commitments about two weeks after the bank meeting. After that, there’s a short review process to ensure correct documentation. Once all the paperwork has been signed and completed, the loan is ready to close, making it a six-to-eight-week process in total (although timing can vary based on circumstances).

• Pick the right lead arranger. Because your lead arranger will negotiate credit terms and structure and sell the deal, the arranger will need a strong track record, experience and credibility.
• Be transparent. Be open and transparent with the lead arranger throughout the process so the arranger can provide you with good execution. 
• Consider the best execution method. The transaction can be structured as an underwritten transaction or a best-efforts transaction. Determine which is right for your business from a timing and cost perspective. The lead arranger can assist with evaluating the options.
• Be prepared for the amount of work it’ll take. Securing executive buy-in and meeting with multiple stakeholder groups can take time and effort. So can creating the marketing materials and financial paperwork necessary for diligence. 
• Be authentic. The authenticity of your management team and company story will reassure lenders about the creditworthiness of your business.

Ultimately, a syndicated loan can boost your company’s liquidity and set it up for greater financial resilience. By educating yourself before you get started, the process will be that much smoother for you to navigate.