Lead lender

How the lead lender role works

In a participation or syndication, one lender faces the borrower. That lead lender sources the deal, underwrites it, signs the loan documents, funds or coordinates funding at closing, and records the lien in its name. Participants buy undivided interests in the loan through a participation agreement, but they generally have no direct relationship with the borrower.

After closing, the lead lender usually:

• Services the loan: collects payments, manages draws and escrows, and watches insurance and taxes.
• Remits each participant’s share and sends regular reports.
• Handles borrower requests, asking participants for consent where the agreement requires it.
• Leads any workout or foreclosure.

Lead lenders often keep a share of the loan themselves so their interests stay aligned with the participants’.

Why it matters to a private lender

Being the lead lender means keeping the borrower and the servicing while using other people’s capital for part of the loan. It also means duties to the participants. The FDIC tells banks buying participations to underwrite the loan as if they had originated it, rather than rely only on the lead, so expect participants to review your underwriting, servicing and reporting.

Example

Hypothetical. A lender closes a $1,200,000 construction loan, keeps 25% and sells 75% to a participant. It manages every draw and inspection, and the participant receives 75% of each interest payment, net of any servicing fee in the agreement.

Lender Capital handles whole loans only, never participations: one capital partner buys the entire loan, settled through an escrow agent, and Lender Capital never lends or buys loans with its own money. To sell a whole loan you already funded, see sell your loans.

Prepare for that review with the lender due diligence checklist.