In conclusion, each consortium is a consortium, but not all consortia are a consortium. When it comes to credit, the big difference (in my opinion) is that the lender cannot be repaid. With a consortium, the lender can repay one bank and fail another. In the case of a union, there is only one loan, the lender must default on the entire loan, which can create legal complexities and impose other legal consequences on the borrower. They may be similar and the two terms are used as synonyms for each other, but there are technical differences when it comes to transactions, procedures, relationships, legal complexities, etc. As defaults have increased, banks have become more cautious about lending to businesses without a level of investment. They have begun to increase the number of corporate credit accounts in order to conclude agreements on syndicated loans, improve access to information and avoid surprises. As with a loan guarantee, syndicated financing is for transactions that may not be done with a single lender. Several banks agree to supervise a single borrower at the same time as joint evaluation, documentation and follow-up and to have equal shares in the transaction. Unlike credit syndication, there is no leading bank to manage the financing project; all banks play an equal role in project management. Credit syndication usually occurs when several banks lend money to a borrower at the same time and for the same purpose. Generally speaking, a consortium is a group of individuals or entities that decide to pool resources for a specific purpose. A consortium is usually subject to a legal contract that delegates responsibilities among its members.
In the financial world, a consortium refers to several credit institutions that come together to jointly finance a single borrower. These banks have a common agreement between them. Sometimes the participating banks form a new unionized bank that handles the lending process, uses each institution`s assets and eventually dissolves once the project is completed. The lender that has taken the highest risk (by granting the highest amount of credit) acts as an executive and manages all transactions, agreements, etc. between the consortium and the borrower. The consortium agreement is a crucial document and is not easy to draft. It must be clear what the rights and obligations of the parties, which must focus resolutely on the objective of the consortium. In this article, Gupta Shubham, NUJS` Entrepreneurship and Business Rights Administration diploma, Kolkata, discussed the difference between credit syndication and a consortium. Sometimes the participating banks form a new unionized bank that operates using each institution`s assets and disapplying each institution once the project is completed. By allowing all members to pool their assets, consortia allow smaller banks to embark on larger projects.
Each of the participating banks may act as a director or assume responsibility for the managing bank depending on the establishment of the credit contract. Consortia are not designed to treat international transactions as a syndication loan. Instead, a consortium may emerge because the size of the above project is simply too large or too risky for a single lender to expect. While credit banks generally operate across borders and can conduct financing transactions in different currencies, consortia usually operate within the boundaries of a given nation. There are cases where a borrower turns to a bank for huge loans; this high amount represents a high risk for an individual lender.