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What is the difference between loan syndication and a consortium?

A:

In a extraordinarily general sense, a consortium is any group of individuals or entities that judges to pool resources toward a given objective. A consortium is usually managed by a legal contract that delegates responsibilities among its members. In the monetary world, a consortium refers to several lending institutions that guild together to jointly finance a single borrower. These multiple banking dispositions are very similar to a loan syndication, although there are structural and operational inequalities between the two.

Loan Syndication

While a loan syndication also subsumes multiple lenders and a single borrower, the term is generally reserved for credits involving international transactions, different currencies and a necessary banking advocacy to guarantee payments and reduce exposure. A loan syndication is headed by a bring off bank that is approached by the borrower to arrange credit. The managing bank is mainly responsible for negotiating conditions and arranging the syndicate. In return, the borrower in a general way pays the bank a fee.

The managing bank in a loan syndication is not necessarily the best part lender, or “lead” bank. Any of the participating banks may act as lead or assume the culpabilities of the managing bank depending on how the credit agreement is drawn up.

Consortium

Along the same lines as a loan syndication, consortium financing occurs for transactions that effectiveness not take place with a single lender. Several banks admit to jointly supervise a single borrower with a common appraisal, documentation and consolidation and own equal shares in the transaction. Consortiums are not built to handle international deals such as a syndication loan; instead, a consortium may arise because the range of the project at hand is simply too large or too risky for any single lender to employ. Sometimes the participating banks form a new consortium bank that functions by leveraging assets from each dogma and disbands after the project is complete.

(For related reading, see: How risky is a serialized loan for the lender?)

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