Loans What Is a Syndicated Loan? Syndicated Loans Explained By Justin Pritchard Justin Pritchard Facebook Twitter Website Justin Pritchard, CFP, is a fee-only advisor and an expert on personal finance. He covers banking, loans, investing, mortgages, and more for The Balance. He has an MBA from the University of Colorado, and has worked for credit unions and large financial firms, in addition to writing about personal finance for more than two decades. learn about our editorial policies Updated on May 5, 2022 Reviewed by Charles Potters Reviewed by Charles Potters Charles is a nationally recognized capital markets specialist and educator with over 30 years of experience developing in-depth training programs for burgeoning financial professionals. Charles has taught at a number of institutions including Goldman Sachs, Morgan Stanley, Societe Generale, and many more. learn about our financial review board In This Article View All In This Article Definition and Examples of a Syndicated Loan How Syndicated Loans Work Types of Syndicated Loans Notable Happenings Photo: Thomas Barwick / Getty Images Definition A syndicated loan is a loan from a group of banks to a single borrower. Definition and Examples of a Syndicated Loan Large organizations such as governments and multinational corporations occasionally need to borrow money—just like you. When they do, they often go to banks. Borrowing for massive expenses is challenging unless several lenders join forces to provide a loan that’s large enough to meet a borrower's need, and this is known as a "syndicated loan." Note Syndicated loans make sense when a loan is too big for any individual lender to reasonably offer. Government bodies might borrow for massive infrastructure improvements requiring hundreds of millions of dollars. A company might borrow to purchase equipment or build sophisticated facilities for large-scale manufacturing. Businesses use these loans to buy other companies, and they also obtain syndicated loans to refinance existing debts. Lenders include large financial institutions, such as banks and finance companies, as well as institutional investors who want to earn interest by participating in syndicates. In some cases, the lenders sell their interests or assign the loan to other investors so they can replenish cash and reduce their exposure to any individual borrower. How Syndicated Loans Work When an individual lender is unable or unwilling to fund a particularly large loan, borrowers can work through one or more lead banks to arrange to finance. That syndicate manager works with the borrower to arrive at interest rates, payment terms, and other details described in a term sheet. From a Borrower's Perspective Syndicated loans make it relatively easy to borrow a significant amount. The borrower can secure funding with one agreement instead of attempting to borrow from several different lenders individually. From a Lender's Perspective Note Syndicated loans enable financial institutions to take on as much debt as they have an appetite for—or as much as they can afford due to regulatory lending limits. Lenders can stay diversified but still participate in large, high-profile deals. What's more, they gain access to industries or geographic markets that they don't ordinarily work with. These loans are contractual obligations, making them similar to other senior sources of capital, and they may even be secured with collateral. Types of Syndicated Loans Loans come in a variety of forms, and a single loan might have several different types of debt. Revolving Debt This allows borrowers to take only what they need when they need it, and come back for more later. Lenders set a maximum credit limit, and borrowers may be able to borrow and repay repeatedly (or "revolve" the debt) against a line of credit. Term Loans These provide one-time financing that borrowers typically pay off gradually with fixed payments. Some term loans feature a large balloon payment at maturity instead of amortizing payments. Letters of Credit (LOCs) These bank guarantees provide security to a party the borrower is working with. For example, a standby letter of credit might protect a municipality that pays millions of dollars for an infrastructure project, but the contractor fails to complete the project. The LOC would provide funds to the municipality (at the contractor's expense), enabling them to pay other contractors or fix the problem in other ways. Delayed-Draw Lines These are approved funding lines that borrowers use over a period of time for planned expenditures. Other Arrangements A syndicated loan might feature several different terms. For example, a loan might have a portion of the debt due in seven years, with the remainder due after ten years. Those loans also might have fixed interest rates for the life of the loan or variable interest rates that fluctuate with an index such as the prime rate. Notable Happenings In 2018, Broadcom sought $100 billion in a record-breaking syndicated loan. The company was seeking to buy Qualcomm at the time for $121 billion. To secure funding, Broadcom was to work with some of the largest financial institutions in the world, including: Bank of America Merrill LynchCitigroupDeutsche BankJP MorganMizuhoMitsubishi UFJ Financial GroupSumitomo Mitsui Banking CorporationWells FargoScotiabankBMO Capital MarketsRBC Capital MarketsMorgan Stanley Although those banks are large, they entered into a loan syndicate in which each bank provided a portion of the credit to the company. As a result, the credit risk was spread out between all of the banks within the syndicate—the risk being limited to their share of the loan. As in the case of Broadcom, some of the lenders were looking to derisk by selling their portion of the loan. In this way, the syndicate banks earned the fee income for handling the underwriting and origination risks but didn't have to hold the debt on their books. The $100 billion would pay for the Qualcomm purchase as well as the costs associated with transitioning Qualcomm operations into Broadcom. The deal was expected to include several segments, including: $20 billion for one year$4.477 billion for two years$19.679 billion for three yearsAnother $19.679 billion for five years$5 billion as a five-year revolving credit facility Interest rates ranged from 1% to 1.37% over LIBOR, so they were variable-rate loans, and they had a maximum term of five years. However, the deal was quashed after President Trump signed an order prohibiting it because of national security concerns. Key Takeaways Syndicated loans are funded by multiple lenders.These loans enable businesses to borrow large sums.This type of lending spreads the risks when a single lender is unwilling to fund a loan.Loans come in a variety of terms and various forms of debt. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. U.S. Securities and Exchange Commission. "Broadcom and Financing Sources Sign Binding Financing Commitments to Fund Cash Component of Qualcomm Acquisition." U.S. Securities and Exchange Commission. "Credit Agreement." Reuters. "Broadcom’s $100 Billion Loan Takes Loans to Next Level." Trump White House. "Presidential Order Regarding the Proposed Takeover of Qualcomm Incorporated by Broadcom Limited."