Debt Syndication

Debt syndication simply helps businesses to acquire a large number of loans. Generally by accumulating different amounts from multiple lenders instead of one lender. A leading syndicate firm manages this structured product. Large businesses used debt syndication services earlier. But today even SMEs require large funding. With an increasing number of enterprises in India, the need for large amounts of funds is only likely to grow.

India is a booming economy. With several businesses coming up and the youth focusing on starting enterprises, the requirement for funding is inevitable. The growth is so fast that the funds may be needed in large amounts. The first solution that comes to mind in such a solution is equity funding. However, there is a problem with equity. The ownership of the company diluted the investors, leading to the decreasing claim of the founders of the company. This is where the need for debt syndication is essential.

Debt syndication allows businesses to acquire funding without having to give up on their claim to their own company.

Another reason to get a debt syndication loan is that in normal loans a lender can only provide a certain amount to a borrower depending on their capabilities and other factors. In cases where the funding required is beyond this limit, the syndicate firm arranges multiple lenders. Each of the lenders provides portions of the loan amount.

Eg:- Your company requires 50 crores. And none of the lenders can lend that amount alone. Then a debt syndicate company can acquire you 10 crores from lender A, 20 crores from lender B, 10 crores from lender C, and so on.

Debt syndication comes with numerous benefits which are why several companies are preferring this category to finance their business. Here are some of the features and benefits of the debt syndication facility.

• It is used for large amounts that cannot be lent by a single lender.
• Though there are multiple lenders involved in the loan, there is no need to have an agreement with each individual lender.
• The terms are usually between 3 to 15 years.
• Each bank or financial institution does not necessarily contribute an equal amount.
• Debt syndication is a fast process and effortless process for the borrower.
• There is high flexibility for structures and rates for the loan.
• The borrower simply has to contact the main syndicating firm rather than apply individually to each lender.

If you’re confused about how to get a loan through debt syndication, here’s how the process of debt syndication works:

• Understand your company’s financial requirements carefully. This includes creating a project report on how you plan on using the funds as well.  
• Contact and reach out to a top debt syndication firm that will act as your lead lender. Provide them with the documents as well 
• The lead lender will assess your case, design a loan structure for you as well develop a credit proposal.  
• The lead lender will place the loan on the marketplace and contact other banks or financial institutions who are ready to participate in the loan.
• The loan amount is disbursed once all the lenders finalize the loan contract. 

The following are the common eligibility criteria required to get a debt syndication loan. However, based on the lending financial institutions or banks, there may be additional eligibility requirements.

• The sum amount required must be large. In the case of smaller funds, there are other loan options available.
• Your company must have a good credit score and hold a good reputation in the market.
• Your business must have a strong financial and operational background.
• Businesses must meet the minimum operation period required by the financial institution.
• Your business will need to meet the minimum turnover amount required by the syndicate agent.