Syndicated loans arise when a project requires too large a loan for a single lender or when a project needs a specialized lender with expertise in a specific asset class. Syndicating the loan allows lenders to spread risk and take part in financial opportunities that may be too large for their individual capital base.

Why do loans get syndicated?

Loan syndication most often occurs when a borrower requires an amount too large for a single lender to provide or when the loan is outside the scope of a lender's risk exposure levels. Thus, multiple lenders form a syndicate to provide the borrower with the requested capital.

Why do banks prefer syndicated lending?

Banks with lower net interest margin are found to choose syndicated lending as a way of boosting their margins. The motivation of risk diversification through participating in loan syndications is also confirmed.