What is a consortium bank loan?

Consortium: An Overview. In the financial world, a consortium refers to several lending institutions that group together to jointly finance a single borrower. These multiple banking arrangements are very similar to a loan syndication, although there are structural and operational differences between the two.

How does a consortium work?

A consortium is a group made up of two or more individuals, companies, or governments that work together to achieving a common objective. Entities that participate in a consortium pool resources but are otherwise only responsible for the obligations that are set out in the consortium’s agreement.

How do you structure a syndicated loan?

In a syndicated loan, two or more banks agree jointly to make a loan to a borrower. Every syndicate member has a separate claim on the debtor, although there is a single loan agreement contract. The creditors can be divided into two groups.

Who is the leader of a consortium loan?

Here, the sanction of limits to a borrower is completed with common appraisal, common documentation and monitoring the advance with joint supervision and follow-up exercises. The borrower company gives a mandate to a bank to lead the consortium, which is commonly referred as a consortium lead (leader) bank.

How does a consortium bank help a borrower?

Debt transactions, which require more than a single lender, will often rely on a consortium bank. Several banks agree to jointly supervise a single borrower. A legal contract generally governs the consortium bank and delegates responsibilities among its members.

What’s the difference between a consortium loan and a syndicated loan?

A consortium bank is a subsidiary bank, which numerous other banks form to fund specific projects or to execute specific deals. A syndicated loan is a loan offered by a group of lenders (called a syndicate) who work together to provide funds for a single borrower.

How are multiple banking arrangements similar to consortium advance?

The multiple banking arrangements are similar to a consortium advance and loan syndication, wherein several lenders finance a single borrower. However, there are many structural and operational differences among them. In multiple banking arrangements, a borrower borrows simultaneously from more than one bank independent of each other.