In one sentence
The contract governing a participation, defining each party's share, rights, payment mechanics, and the lead's servicing duties.
The longer version
This agreement is the participant's rulebook: ownership percentage, payment waterfall, voting and consent rights, and what the lead must do and share. Participants rely on it entirely, since they have no direct borrower relationship.
The document flow the agreement requires, diligence package at closing, reporting forever after, is the operational heart of participated lending.
Common questions
- What does a loan participation agreement cover?
- Each party's share, how payments and losses are allocated, the lead lender's servicing duties, voting and consent rights, and how the participation can be transferred.
- What decisions require participant consent?
- Typically major changes such as reducing principal or interest, extending maturity or releasing collateral, as defined in the agreement.
- What should a participant review before buying?
- The underlying loan file, the lead's servicing practices, and the agreement's provisions on consent, defaults and the lead's discretion.
Keep reading
- Loan participations: a working guideLead and participant, document flow, ongoing obligations.
- Running commercial lending operations at a credit unionLean teams, participations, and NCUA.
- The post-closing audit trailWhat examiners ask for and how to have it ready.
- Loan participation softwareGive a participant the file and a live view of it.