What is a syndicated loan? What are its advantages and disadvantages?

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What is a syndicated loan? What are its advantages and disadvantages?

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What is a syndicated loan? What are its advantages and disadvantages?

Explanation & AnswerSolution by a verified expert

Explanation

Syndicated loan is a financial assistance provided by a group of financial institutions or banks who collectively provides funding of a loan to large borrowers, projects or government agencies. The groups or individuals providing funds in the loan are called lead arrangers.
Advantages of a syndicated loan:

Loan requirements of large borrowers may not be sufficient through funds of a single investor; therefore, several investors can pool their savings to provide large funds.
With a large number of lenders, risk is diversified

between several hands.

An investor who is a lender in syndicated loans can sell its share by withdrawing his savings whenever a need arises.

Disadvantages of a syndicated loan:

Syndicated loan is a time consuming process as dealing with banks and financial institutions requires a lot of formalities and undergoes a lengthy process.
Borrowers may face difficulty while dealing with the   different loan requirements and agreements of different banks or institutions in a syndicate.

Verified Answer

Syndicated loan is a kind of loan provided by a group of banks or other financial institutions collectively for the funding of big projects or providing financial assistance to large borrowers.
Advantages of a syndicated loan:

Syndicated loans fulfil the requirement of large borrowers and big projects which might the single investor cannot fulfil.
Diversification of risk within the group of investors.

Disadvantages of a syndicated loan:

Syndicated loan is a tedious and time consuming process.
It might be difficult to fulfil various requirements of a large number of investors in a syndicate.

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