what is loan syndication 
the term loan syndication refers to the process of involving a group of lenders that fund various portions of a loan for a single borrower loan syndication most often occurs when a borrower requires an amount that is too large for a single lender or when the loan is outside the scope of a lender s risk exposure levels multiple lenders pool together and form a syndicate to provide the borrower with the requested capital understanding loan syndicationsloan syndication is often used in corporate financing firms seek corporate loans for a variety of reasons including funding for mergers acquisitions buyouts and other capital expenditure projects these capital projects often require large amounts of capital that typically exceed a single lender s resource or underwriting capacity there is only one loan agreement for the entire syndicate but each lender s liability is limited to their respective share of the loan with the exception of collateral requirements most terms are generally uniform among lenders collateral assignments are generally assigned to different assets of the borrower for each lender the syndicate does allow individual lenders to provide a large loan while maintaining more prudent and manageable credit exposure because the associated risks are shared with other lenders the agreements between lending parties and loan recipients are often managed by a corporate risk manager this reduces any misunderstandings and helps enforce contractual obligations the primary lender conducts most of the due diligence but lax oversight can increase corporate costs a company s legal counsel may also be engaged to enforce loan covenants and lender obligations the loan syndications and trading association is an established organization within the corporate loan market that seeks to provide resources on loan syndications it helps to bring together loan market participants provides market research and is active in influencing compliance procedures and industry regulations 1bank of america securities jpmorgan wells fargo and citi are among the industry s leading syndicators in the u s loan market as of the first quarter of 2021 2special considerationsfor most loan syndications a lead financial institution is used to coordinate the transaction this institution is often known as the syndicate agent this agent is also often responsible for the initial transaction fees compliance reports repayments throughout the duration of the loan loan monitoring and overall reporting for all lending parties a third party or additional specialists may be used throughout various points of the loan syndication or repayment process to assist with various aspects of reporting and monitoring loan syndications often require high fees because of the vast reporting and coordination required to complete and maintain the loan processing example of a loan syndicationlet s say company abc wants to buy an abandoned airport and convert it into a large development with a sports stadium multiple apartment complexes and a mall to do this it needs a 1 billion loan the company goes to jpmorgan the bank approves the loan but because it s such a large amount and greater than the bank s risk tolerance it decides to form a loan syndicate jpmorgan acts as the lead agent and brings together other banks to participate it contracts bank of america credit suisse citi and wells fargo to participate in the loan jpmorgan contributes 300 million to the loan and the remaining 700 million is shared between the other syndicate members bank of america lends out 200 million credit suisse 100 million citi 250 million and wells fargo 150 million as the lead bank jpmorgan also organizes the terms covenants and other details needed for the loan once complete company abc receives the 1 billion loan through the loan syndicate 