Participation agreement
A participation agreement is the contract under which a lead lender sells undivided shares of a loan to participants. It sets each party’s share of payments, who services the loan and who decides on extensions and defaults.
How a participation agreement works
When a lender sells part of a loan instead of the whole loan, the borrower usually never sees it. The loan stays in the lead lender’s name, and a separate participation agreement between the lead lender and each participant defines what the participant owns: an undivided percentage interest in the loan’s payments and proceeds.
A typical agreement covers:
- Shares and payments: each party’s percentage, how principal, interest and fees are split, and whether payments are pro rata or one side is paid first.
- Servicing: who collects, how fast payments are remitted, and what reports participants receive.
- Decisions: which actions the lead lender can take alone and which need participant consent (extensions, rate changes, releasing collateral, foreclosure).
- Defaults and losses: who controls workouts, how costs are shared, and what happens if the lead lender fails.
- Transfers: whether participants can resell their share.
The FDIC tells banks that buy participations to understand the agreement’s terms and limitations and to underwrite the loan as if they had originated it.
Why it matters to a private lender
Capital partners read the participation agreement as closely as the loan file. Clear consent rights, prompt remittance and defined default procedures make a participation easier to place. Vague terms invite disputes when a loan goes wrong.
Have counsel draft the agreement; this is a general overview, not legal advice. See loan participations explained for how participations compare with whole-loan placement.
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.