Once the beneficiary and arranger have negotiated and agreed on the duration of the loan, it is generally the responsibility of the arranger to prepare the creation of the union or grouping; this saves time and energy in financing. A union is a temporary alliance of companies that joins forces to manage a major transaction, which would be difficult or impossible to achieve individually. Syndication allows companies to easily pool their resources and share risks, such as when a group of investment banks work together to launch a new issue of securities on the market. There are different types of unions, such as insurance unions. B, banking unions and insurance unions. Before a union agreement is reached, the parties, the lenders and the borrower, agree on a contract that determines the structure, rules and duration of the syndicated loan; this contract is the insurance contract and is akin to a subscription contract. Some projects are so important that no company can have all the know-how it needs to do the job effectively. This is often the case for major construction projects such as the construction of a stadium, highway, bridge or railway. In these cases, companies can form a consortium, allowing each company to apply its specific expertise to the project. For tax reasons, unions are generally considered partnerships or capital companies. Unions are generally made up of companies from the same sector. For example, two pharmaceutical companies can combine their research and development teams by creating a group for the development of a new drug. Or several real estate companies can form a syndicate to manage a large development.
Sometimes the banks form a union to lend a very large amount of money to a single party. Companies can also form a consortium to manage a given business if the opportunity promises an attractive return (RoR). The primary purpose of a syndicated loan is to spread the risk that would normally be for an individual borrower. Since the value of these forms of investment far exceeds ordinary loans, there is a risk that a default by the borrower could have a disastrous effect on a single lender. In a syndicated contract, there are usually two types of agreements: syndicated loans, also known as Syndicated Bank Facilities, are debts issued by a group of lenders to a single borrower. In short, it is convenient to provide a loan from a group of lenders – known as a syndicate – for financing a single borrower. The investment can be made for a fixed amount, a line of credit or a combination of the two. In a syndicated loan, lenders are generally large banks, although financial institutions such as investment funds and insurance companies sometimes also occupy these roles.