Loan participation
A loan participation is an arrangement where a lead lender sells undivided shares of a loan to other investors (participants) while keeping the loan in its name and usually servicing it.
How a participation works
The lead lender originates the loan and keeps legal title to the note and mortgage. It sells participants a percentage interest in the loan’s payments under a participation agreement. Payments come in to the lead, which passes each participant its share. The borrower usually deals only with the lead.
What to watch
- Decision rights. The participation agreement decides who approves extensions, modifications and enforcement. Requiring every participant to agree can slow decisions; giving the lead full discretion asks participants to trust it completely.
- Lead-lender risk. Participants rely on the lead to collect and remit payments and act in their interest.
- Securities questions. Depending on how interests are offered and to whom, selling participations to investors can raise securities law questions. Talk to counsel.
Participation vs. whole loan
In a whole loan sale or a table-funded placement, one owner holds the entire loan, which keeps decisions simple. A participation splits one loan among several holders. It is useful for loans too large for any one investor.
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.
Where Lender Capital fits
Lender Capital places first-lien, business-purpose real estate loans with capital partners. You apply once, then submit each loan with the full file. We send it only to capital partners whose criteria it fits, one partner funds the whole loan at closing and it is assigned to them. You keep your points (less the placement fee), earn the spread above the partner’s rate and service the loan. You pay a placement fee only when a loan funds.
Lender Capital is a business-to-business platform. This page is general information, not legal, tax or securities advice. Terms of warehouse lines and other funding sources vary by provider; confirm them with each provider and your counsel.