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Loan Syndication Software and Processes: What to Automate and How?

Loan Syndication Software and Processes: What to Automate and How?

Loan syndications are a reinvigorated and growing area of lending that has grabbed the attention of investors and lenders alike. In 2021, the global syndicated loans market had a value of $1018.7 billion. It is expected to expand significantly, with a projected value of $3798.4 billion by 2031. This represents a compound annual growth rate (CAGR) of 14.2% from 2022 to 2031.

Recent evolutions in the sector have seen the emergence of non-bank lenders joining the realm of syndicated credit in a new wave of modern lenders, similar to Peer to Peer (P2P) lending. But as this sector develops, it faces greater expectations to move forward and away from its roots in traditional banking and forward into the future.

Let’s look at the future of syndicated loan operations and loan syndication software and what this could mean for a new generation of borrowers and lenders.

What Are Syndicated Finance and Syndicated Lending?

Syndicated lending is a system wherein a lead arranger takes on a loan and involves other lending participants to reduce the risk, and reap the rewards. The group of lenders who join is known as a loan syndicate, and such systems date back to the early 1960s. Recently, syndicated loan data shows that they have experienced an uptick in interest and there is a defined move to establish a more modern approach.

Who Is Involved in Syndicated Lending?

When it comes to syndicated lending, a number of parties are involved. These include:

  • Lead lender/arranger – this is the financial body in charge of the loan. They manage the processes alongside the syndicate including underwriting and financing. In most cases, the lead lender is a large bank, however, recently, non-bank lenders have also been on the uptick.
  • Syndicate – this is a group of investors, who come together to lend to a particular body/entity.
  • Borrower – this is the individual or company that is requesting the loan from the syndicate or lead lender.
  • Regulatory bodies – all lending processes must meet the requirements of the relevant regulatory body. At a minimum, it should meet anti-money laundering (AML) standards.

What Do Syndicated Loan Operations Currently Look Like?

Before we can dive into which processes can be automated, let’s take a look at how syndicated loan operations currently work and which processes a syndicated loan goes through. For this, we’ll explore a syndicated mortgage.

1. A borrower requests a loan

The bank or lending provider received a request from a borrower including the details of why they want the loan. In this case, we assume it’s to purchase some commercial real estate through a mortgage. The bank decides that this loan could be too risky and seeks out other prospective lenders to form a syndicate and fund the loan.

2. KYC, AML, and Due Diligence

How Loan Automation Maximizes the Efficiency of Lending Process Although the loan will be funded via a syndicate, the client’s solvency and identity have to be established to ensure the loan and its potential pay-off are genuine. Relevant checks are performed at this point as required by the regulatory authority.

3. Underwriting the loan

Depending on their risk appetites and available finances the pool members of the lending syndicate can now underwrite or agree to fund the loan. Pledges and percentages may vary at this point.

4. Loan is issued

At this stage, following a successful decision by the members of the syndicate, a loan is given, and the applicant is able to acquire their syndicated mortgage

5. Loan servicing is carried out

The lead lender services the loan utilizing the tools at their disposal. For example, this may involve the sending and collection of funds, interest payments, accruals, etc., using loan servicing software or other tools.

6. Repayment

Once the loan has been repaid, the deal is considered closed. However, should any default occur, the lead lender may find themselves responsible for seeking repayments.

How Can Loan Syndication Software Optimize and Automate the Process?

Now we know the basics of the loan syndication process, let’s take a look at how it can be optimized to get the best results for all parties—client, syndicate, and the lead lender.

Development of syndicated loan platforms

As syndicated lending evolves, the development of syndicated loan platforms is the next logical step. These may be stand-alone projects, such as a syndicated loan trading platform or integrated tools within a bank, or something in between. Armed with tools such as commercial lending software, financial organizations have the possibility to develop a wide range of solutions for syndicated lending, from niche areas such as funding a particular new business to more established activities such as the development of real estate syndication software.

Automating the due diligence process

How Automation Improves Compliance in Lending AML, KYC, and due diligence are vital parts of any financial business. Organizations seeking to dive deeper into loan syndication will need to seek out ways to make the process as simple as possible. Automating form-filling and information gathering helps these processes move smoother for both the client and your business and allows your team to effectively process the loan.

Managing risk more effectively

Lending is a risky business and that goes for both the borrower and the lender themselves, as well as the syndicate. To effectively reduce the risk to all parties, the lead lender can take charge of the syndicated surveying process, analyze syndicated loan data and complete necessary risk assessments using the latest tools on the market. For example, loan risk model software can be readily engaged to establish potential risks and negate them more efficiently.

Optimize end-to-end loan processes

HES Core: Digital Lending Engine Behind HES Software From onboarding to lending to repayment, modern AI-power tools can help lending syndicates to better manage their investments and money by keeping track of every part of the lending process. Loan origination software can handle the lead-up to the loan and ensure minimum risk when lending. Meanwhile, servicing software monitors repayments and detects any anomalies, ensuring lending remains effective for your business.

What Are the Main Benefits of Automated Loan Trading Platforms and Software?

Reduces the decision-making time

Even if you’re a major market player, your borrowers are going to wait forever. Automated loan syndicate tools allow you to make the lending decisions that you need to in the most efficient time possible, ensuring your client feels valued every step of the way.

Lowers risk with smarter decision-making

Engaging the right risk assessment tools can help establish how much of a risk a potential investment may or may not be, and if the risk is worth the reward. Smart AI tools use smart machine learning models to analyze and establish risks based on individual metrics and established conditions.

Illuminates the costs for investors

Utilizing the right software solutions for loan syndication allows all parties involved to be transparent when it comes to the loan. Costs and repayments can be clearly highlighted via technology to ensure the terms of the loan are clear.

Processes documents faster

Back Office Automation in Digital Lending: Top Core Process Improvement Ideas In the fast-paced world of financial technology, speed is of the essence. Artificial intelligence software empowers companies to speed up regular processes and function more effectively. By processing documents faster, businesses can not only ensure a loan is issued quicker but can also improve client satisfaction at the same time.  

The Syndicated Loan Market in 2022 and Beyond: Next Steps

As the syndicated loan market continues to evolve in 2022 and beyond, it’s likely we’ll see an increase in the application of lending software to facilitate the process and automate the systems that can be automated. By nature, the lending market can be exceptionally volatile and those seeking to get involved would be best to onboard the best technology solutions at the start to avoid challenges down the line.

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