When a borrower requires a sum of money that is too large to be provided by a single lender, or outside the scope of the lender’s risk-exposure level, funds are agglomerated from a number of lenders in a process termed as debt syndication. Find out how your business can use debt syndication to scale and run operations.
What is Debt Syndication?
Debt syndication involves a group of lenders funding various portions of a loan to a single borrower. A syndicated loan is a structured product that needs to be arranged and administered effectively. This is usually done by a third party or a consulting firm since there are a number of lending parties involved. The credibility that Tata Capital enjoys in the market has helped Tata Capital cultivate a number of important connections with various lending parties to provide some excellent financing solutions.
Syndication solutions and syndicated solutions were initially used by Fortune 500 companies that required large amounts of funds for their projects. Today, however, SMEs and large corporations frequently seek syndicated loans. These are used to finance power plants, steel plants, refineries and even to fund takeovers, mergers, and acquisitions. With a large number of businesses plying in the Indian market today, the requirement for funds is only likely to grow and debt syndication in India may offer a viable financing alternative to companies.
The Need for Debt Syndication in India
A number of businesses in the Indian market today could use additional financing solutions for the financial leverage required to scale operations and grow. For a long time, firms in the Indian market have suffered from a lack of options in financing solutions since the debt market in India was less developed than the equity market. Although the equity route is a viable one for raising funds, it provides the investor with a claim to the business and dilutes the ownership interest of the founders. For this reason, many company owners choose to retain their claim to ownership of the business and restrain themselves from seeking equity funds.
In recent times, however, debt syndication in India has helped bridge the gap between equity markets and debt markets in India. The growth in the availability of syndicated loans means that owners have alternative methods to raise funds for their companies without having to dilute their ownership. In the future, the availability of these loans is only expected to rise based on the trends of other countries like Japan, Korea, and the USA who have developed debt markets. Further, the cumbersome and drawn out process of having to meet and coordinate with multiple individual lenders is no longer necessary in case of these loans. The increase in the availability of syndicated loans will prove to be a boon for many corporates and entrepreneurs plying in the market today who are in requirement of funds for their respective businesses by way of structured product from Tata Capital.