Bilateral Loans vs. Syndicated Loans: What’s the Difference?

Bilateral and syndicated loans provide companies with additional capital for acquisitions, growth, and maintaining operations during distressed periods. Which loan makes the most sense for your business? The following article will help you determine which features provide the best fit and how to efficiently manage the financing.  

1. What is a Bilateral Loan?

   Simply stated, a bilateral loan is made between a borrower and a single lender. 

2. What is a syndicated loan?

   A syndicated loan is made by a group of lenders to a company that is too large or risky for a single lender to hold. 

3. Complex Bilateral and Syndicated Loans: How third-party loan agency professionals may help

   An independent loan agency may complete the day-to-day administrative tasks under a credit agreement without straining the in-house resources of the involved parties.

Understanding the difference between bilateral and syndicated loans 

Bilateral and syndicated loans are used when companies seek funding for mergers and acquisitions, cash flow, and corporate growth purposes. Bilateral loans tend to be smaller in size and less risky and therefore, may be made between a single lender and company. Syndicated loans are often much larger in size and may also be risky, which is why a group of lenders (called a “syndicate”) are used. 

Bilateral Loan Characteristics 

Often targeted for smaller businesses, loan agreement terms of bilateral loans are not complex and may be flexible to some extent. A lender will determine whether to enter a bilateral loan agreement by considering the business’ creditworthiness, reputation, and previous financial history.  
 
In some cases, if a company is deemed as risky, collateral may be pledged against the loan to ensure the lender is compensated if the borrower is unable to meet its loan obligations. 

Syndicated Loan Characteristics  

Larger businesses often pursue syndicated loans when a financing is large and possibly risky. A group of lenders contributes a portion of the borrower’s requested funds. In this way, risk is dispersed among the group. The borrower is bound to a credit agreement with all of the lenders.  

Syndicated loans are often under intense scrutiny during due diligence, and these loans are sometimes more expensive and complex to manage. They also may have different structures or payment options within their credit pacts. 

Who Is Involved in a Syndicated Loan 

The key players in a syndicated loan are the lead arranger and the agent. The lead arranger is the financial institution that runs the transaction. It will bring on other arrangers to help support the financing. 

The agent, often called the administrative agent, is the intermediary between the lender group and borrower. The agent is responsible for carrying out the day-to-day administrative tasks governed by the credit agreement. The agent does not have any fiduciary responsibility toward the loan. 

How an Independent Third-Party Loan Agency Can Help 

Rather than overwhelm in-house resources, a third-party loan agency can provide an efficient and convenient solution to managing loan agreements. The independent agent will perform functions including processing lender trades, making interest payments, preparing and distributing financial notices, and so on. Outsourcing this step will free up internal resources that can focus on core, vital business roles. 

How Loan Agency Ensures a Well-Run Syndicated or Bilateral Loan 

Loan agency is essential for running a smooth transaction whether it be financed via a bilateral or syndicated loan. An independent administrative agent serves as a key coordinator to carry out administrative tasks related to the credit agreement, without putting undo strain on internal resources.