Loan Participations: Sharing risk and reward

Loan participations are a proven way to address liquidity concerns and add some income. They can also be complicated, but there’s help.

Credit unions have a long history of working together, and the rise in loan participation activity in the past decade shows that willingness to collaborate writ large.

The movement’s portfolio of purchased participations at year-end 2018 stood at $31.6 billion, nearly triple of that at the end of 2009. At that point, as the financial crisis was at its deepest, there were 507 credit unions that had sold participation loans on their books and 1,206 that had purchased participation loans. Today, that’s 772 and 1,738, respectively.

The appeal is simple: participation loans allow lenders to partner with other lenders to reduce risk exposure and increase profits. They help free up capacity, increase liquidity, and reduce concentrations.

 

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