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somya (ca ) (172 Points)

25 March 2009

What is the difference between Loan Syndication and Loan consortium?

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Arpit Gupta (Chartered Accountant ) (95 Points)
Replied 25 March 2009

Loan Syndication - when more than one lender in a group, i.e. in the co-operation of other lenders, lends money (due to non fulfillment of demend of borrower alone i.e. the amount to be lent is very huge) then such type of loan are typically called as syndicated loan

Loan Consortium - this term is very similar to loan syndication basically these two words are used interchangeably but there is very minor difference between two the former onbe used in regular kind of activity while the later one is used only for once i.e. cosortium gets ended after the one lending transaction.

In common parlance, when more than one business group (working in the same area) combines togeather for the purpose of a common activity or goal without loosing thier seprate identity considered as consortium

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CA. Mayur (Service) (147 Points)
Replied 24 April 2012

Syndication of loan is arranged by a lead arrangers and it is on common terms which is finalised between borrower and arranger where as in consortium loan borrower has to arrange the finance himself from different bank this finance on different term and at different pricing
Loan Syndication and Consortium finance is resorted to when a client needs a huge loan which a single Bank either cannot provide or cannot take risk to provide.
In Loan Syndication, a large bank approaches the client, fixes up the terms and conditions, interest rates etc. Thereafter, he approaches other Banks for "selling" of this loan. The other banks ,if agree, "purchase" a part of the loan on the same or different terms and conditions. In Loan Syndication, the client deals with one Bank only.
In Consortium Finance, a Large Bank approaches the client, collects the information about amount of loan, terms and conditions and then calls a meeting of other Banks. Those who agree to lend the money approach the client and the client fixes up the loan with each of them separately. The follow-up and other jobs is done by the Leading Bank of the consortium which is mutually decided by the participating Banks.(Need not be the highest lender).