Getting a syndicated loan: What you need to know

A syndicated loan is a type of corporate financing provided by a group of lenders—typically coordinated by a lead bank—that pool resources to finance a single borrower. Syndicated loans are needed when the loan amount is too large for a single financial institution to handle. They are an alternative to traditional bank loans, or “bilateral loans,” which generally involve one lender providing capital to one company.

Keep reading to learn more about syndicated loans, how they work and how to secure one.

What you’ll learn:

• Typically, syndicated loans are those made by a group of lenders to single borrowers.
• For business owners, the benefits of a syndicated loan include streamlined financing and access to more capital than a traditional loan may provide.
• Securing a syndicated loan requires a strategic plan with best practices like securing stakeholder buy-in before starting the process.

A group of lenders—a syndicate—provides a syndicated loan, with each lender responsible for a portion of the loan amount. A syndicated loan is an option when you need more money than a single lender can provide or when your capital needs exceed a lender’s tolerance for risk—because each lender shares the loan risk, which is limited to their percentage of the loan agreement.

While every syndicated loan is different, typically they involve a single borrower and the following entities and processes:

• Lead arranger: The lead arranger works on the deal structure and runs the syndication process. Typically, the borrower and lead arranger work closely together. For example, the borrower and lead arranger may work together to prepare documents like the term sheet, financial model and lender presentation, as well as the confidential information memorandum, which details the company, industry, financial conditions, financing terms and syndication timeline.
• Joint lead arrangers: Depending on the loan size, the process may also include lenders known as joint lead arrangers, or JLAs. They tend to provide higher capital commitments and focus on pitching and securing ancillary bank business.
• Agent: The agent is generally in charge of administrative tasks and is the contractually obligated go-between for the lenders and borrower.
• Trustee: The trustee is responsible for the borrower’s collateral asset. If the borrower defaults on the loan, the trustee is legally obligated to act in the lenders’ best interests and ensure they can claim the asset to recover their losses.

During a bank meeting, the borrower presents the company’s financial outlook to potential lenders, and the lead arranger negotiates the credit agreement.

Usually, participants will provide commitments about two weeks after the bank meeting. Then there’s a short review process to ensure correct documentation. The process generally takes six to eight weeks from start to finish, although the timing may vary depending on specific circumstances.

There are many benefits to a syndicated loan, including: 

• Provides more capital than a sole lender can provide.
• Streamlines financing.
• Acts as a possible precursor to larger capital-market transactions (e.g., bonds or initial public offerings).

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

Securing a syndicated loan requires planning and strategic decision-making. Here are five best practices to guide you through the process:

1. Secure buy-in from stakeholders. Buy-in from stakeholders at all levels may ensure alignment and support across the organization. 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—but the hard work is necessary for the result.
2. Choose 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.
3. Be transparent. Be open and transparent with the lead arranger throughout the process so the arranger can provide you with good execution.
4. Be authentic. The authenticity of your management team and company story will reassure lenders about the creditworthiness of your business.
5. Keep your options open. 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.

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 may be that much smoother to navigate, and understanding the benefits and best practices is the first step.

If your business isn’t quite ready for a syndicated loan but is ready to explore more options for business financing, compare business credit cards from Capital One. Look for the business-grade benefits and features that meet your business’s needs.