Consortium
financing is an activity of lending that might not take place with a single
lender. Many banks jointly grants a loan to a single borrower with a common
documentation, follow up, appraisal and own equal number of shares. Many banks
come together and play an equal role in managing the loan project.
A
legal contract governs the transaction. There is a consortium bank that
comprises of several banks that jointly decide to lend to the single borrower. The
banks dissolve the consortium after the transaction. They are not built to
handle international transaction which is a major difference between consortium
finance and loan syndication.
Loan
syndication is an activity where multiple banks come together to lend the same
person for the same purpose. There are major structural and functional
differences between the two. Loan syndication is led by a managing bank which
is then responsible for negotiating conditions and arranging the transaction.
The borrower is obliged to pay bank fees for the same. The managing bank may
not be the major lender. It depends on how the credit agreement is drawn up. The
borrower approaches the managing bank for credit. It is a practiced method for European and
American corporations that wish to seek financing from lenders and banks.
Thank You
Regards
Author: Kaushal Shah
Kautilya
IBS Mumbai
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