Obligations of lenders several: Overview, definition and example
What does "obligations of lenders several" mean?
The phrase "obligations of lenders several" refers to a contractual provision in loan agreements where multiple lenders each have independent obligations to provide their respective portions of the loan. This means that no lender is responsible for another lender’s commitment or liable for the entire loan amount. Each lender’s liability is limited to its agreed share of the financing.
For example, in a syndicated loan, where multiple banks lend to a borrower, each lender is only required to fund its portion of the total loan commitment, and if one lender fails to fulfill its obligation, the other lenders are not required to cover the shortfall.
Why is "obligations of lenders several" important?
This provision is important because it protects lenders from being held responsible for another lender’s failure to meet its commitment. It ensures that each lender’s risk exposure is limited to the portion of the loan they agreed to fund.
For borrowers, this structure provides clarity on the sources of funding but also means that if a lender defaults on its obligation, the borrower may need to seek alternative funding sources unless the agreement includes contingency provisions.
In syndicated loans or multi-lender agreements, defining lender obligations as several (rather than joint and several) ensures that no single lender bears the financial burden of another lender’s inability or refusal to provide funds.
Understanding "obligations of lenders several" through an example
Imagine a company secures a $50 million syndicated loan from five banks, with each bank committing $10 million. The loan agreement includes an "obligations of lenders several" clause. If one of the banks is unable to provide its $10 million share, the remaining four banks are not required to make up the difference. The borrower may need to find an alternative lender or restructure the agreement.
In another example, a real estate developer arranges financing from three lenders, each committing a percentage of the total loan. Under the obligations of lenders several clause, each lender is only responsible for its specific share, ensuring that one lender’s financial issues do not impose liability on the others.
An example of an "obligations of lenders several" clause
Here’s how an obligations of lenders several clause might appear in a loan agreement:
“The obligations of each Lender under this Agreement are several and not joint. No Lender shall be responsible for the failure of any other Lender to advance its portion of the Loan Amount. Each Lender’s commitment and liability shall be limited to its respective allocated share as set forth in this Agreement.”
Conclusion
The "obligations of lenders several" provision ensures that each lender in a multi-lender or syndicated loan arrangement is only responsible for its individual commitment. This protects lenders from additional liability while providing borrowers with clarity on funding sources. Including this clause in loan agreements helps manage risk, define responsibilities, and prevent disputes in case of lender default or funding shortfalls.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.