Consortium is a Latin word, meaning 'partnership, association or society' and derives from censors 'partner', itself from con- 'together' and sores 'fate', meaning owner of means or comrade.
Under consortium
financing, several banks (or financial institutions) finance a single borrower
with common appraisal, common documentation, joint supervision and follow-up
exercises, these banks have a common agreement between them, the process is
somewhat similar to loan syndication.
There are many advantages
of consortium financing. The main advantages are mentioned below:
- Allows the borrower
to access from a diverse group of financial institutions.
- Borrowers can raise
funds more cheaply in the syndicated loan market than by borrowing the
same amount of money through a series of bilateral loans. This cost saving
increases as the amount required rises
- Each bank needs to
come to an understanding of the business and how its financial activities
are conducted.
- A comfort level must
be established on both sides of the transaction, which requires time and
effort.
- Negotiating a
document with one bank can take days. To negotiate documents with four to
five banks separately is a time-consuming, inefficient task.
- Staggered maturities
must be monitored and orchestrated.
- Multiple lines
require an inter-creditor agreement among the banks, which takes
additional time to negotiate.
- Under consortium
financing, several banks (or financial institutions) finance a single
borrower with common appraisal, common documentation, joint supervision
and follow-up exercises, these banks have a common agreement between them,
the process is somewhat similar to loan syndication.