Terms

Participation Agreement

Parent term

A participation agreement is an economic arrangement whereby a lender originates a loan to a borrower and then sells a portion of that loan to another party.

  • The originating lender commonly holds a participation interest in the loan
  • The originating lender retails title to the loan
  • The originating lenedr retains all the loan documentation in its own name and continues to service the loan
  • The originating lender maintains all interaction with the borrower
  • Only the economics are transferred to the agreement purchaser
  • Introduces counterparty risk.  The holder of the agreement may have trouble collecting if the original lender fails, even if the borrower is paying.