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.


Top-Level Takeaways

  • Loan participations spread risk and returns, allowing credit unions to diversify their portfolios through collaboration.
  • Connecting and servicing loan participants has become a cottage industry for some credit unions and CUSOs.

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. 


© Callahan & Associates |

Loan participation activity has risen sharply in the past five years, and tends to peak in the fourth quarter each year.

Buyers also can use the loans to test the waters in areas they’re not experienced with, such as commercial lending or niche products like solar. They can also extend the geographic range of the local economies in which they can participate.

Because of that, a mini-industry of sorts has sprung up. Credit unions, CUSOs, corporates, and others who provide the broker, advisory, and servicing functions, can help credit unions, large and small, take advantage of the opportunity to share the risk and rewards of loan participations.

That activity reflects a dynamic that has seen the industry’s loan-to-share ratio hit a first quarter record high of 82.3% in 2019, up 13.2 percentage points in the past five years alone. Within that aggregate are credit unions with low ratios that can benefit from buying participations that yield more than investments, and conversely, credit unions with high loan-to-share ratios who can sell parts of their portfolio to gain the liquidity they need to keep lending.


© Callahan & Associates |

There are 190 more credit unions with sold participations outstanding at year-end 2018 than five years ago, a jump of 32.6%.

Time To Buy?


Alliant Credit Union
Data as of 03.31.19

HQ: Chicago, IL
ASSETS: $11.6B
MEMBERS: 452,560
12-MO LOAN GROWTH: 10.7%
ROA: 0.39%

The first thing participations specialists can help a credit union do is decide if the time is right to buy or sell, or both.

A sweet spot for participation activity is the intersection of credit unions with too many deposits and those with too many loans. 

“A lower than desired loan-to-share ratio is a common motivator for buying loan participations,” says Charles Krawitz, vice president of commercial lending at Alliant Credit Union ($11.6B, Chicago, IL). 

The costs in personnel, office space, and technology for producing loans also makes buying participations attractive, says Krawitz, whose credit union currently has 15 other cooperatives buying their participations. 

Charles Krawitz, Vice President of Commercial Lending, Alliant Credit Union

Alliant began selling consumer and residential loan participations in 2014 and added commercial loans in 2017. Krawitz says his operation averages 33 basis points of servicing income on its participated loans, plus generates varying gains on the sales themselves.

The income is nice, of course, but income and risk management are not the only benefits of selling and servicing participation loans. 

“Being in the market helps us enter into constructive dialogue with other credit unions,” Krawitz says. 

“Such discussions often provide insights on risk tolerance, loan structure, pricing and market positioning,” the veteran commercial lender says. “We’re able to learn from others while sharing what we feel constitute best practices.” 


© Callahan & Associates |
Rank Credit Union State Participations Sold YTD
1 Digital MA $191,669,521
2 Bethpage NY $145,082,755
3 Alliant IL $92,998,156
4 American Heritage PA $88,352,491
5 Hershey PA $78,333,334
6 Logix CA $78,007,885
7 Coastal NC $76,001,418
8 First Tech CA $69,523,802
9 Bellco CO $58,446,813
10 Verve WI $53,875,482

Alliant sold the third most participation loans among U.S. credit unions in 2018, according to Callahan & Associates analysis of NCUA call reports, while Digital Federal Credit Union finished atop the list.

When To Sell


Digital FCU
Data as of 03.31.19

HQ: Marlborough, MA
MEMBERS: 820,869
ROA: 0.55%

But when is it a good time to sell loans? The answer varies from cooperative to cooperative, according to the chief lender at a current leader in participating out credit union paper.

“Every credit union has different needs based on their balance sheet position,” says Craig Roy, senior vice president for retail lending at Digital Federal Credit Union ($8.9B, Marlborough, MA).

According to Callahan data, DCU sold $191.7 million in participation loans in 2018, the most in the industry. Since 2015, the big Bay State cooperative has sold $2.8 billion in commercial, mortgage, and consumer loans, Roy says, and is currently expanding into home equity and solar loans.

Craig Roy, Senior Vice President for Retail Lending, Digital FCU

That activity has helped maintain order in a burgeoning lending portfolio. “DCU has been fortunate to experience steady loan growth over the years. We view loan participations as an important tool to manage balance sheet risks, and it allows us to continue to serve our members in the best way possible,” Roy says.

Serving those members in the best way possible also can include loan participations as an economic development tool. That’s the case for credit unions who have the opportunity to make commercial or agricultural loans that are sound from an underwriting perspective but larger than what the originating credit union would want to hold on its books. 

“For them, participations may be a good option and should be considered,” says Phil Love, president and CEO of Pactola, a commercial and ag lending CUSO based in Rapid City, SD.

He adds, “Credit unions that want to challenge banks for larger deals can make a large impact in their community by helping to create jobs and fulfill the dreams and financial goals of workers at these companies.”


© Callahan & Associates |
Rank Credit Union State Participations Sold Outstanding
1 Bethpage NY $383,629,492
2 Digital MA $355,045,427
3 Verve WI $209,910,901
4 Evangelical Christian CA $188,756,651
5 First Tech CA $186,339,868
6 Coastal NC $172,467,099
7 Bellco CO $167,491,296
8 Pentagon VA $135,853,944
9 Logix CA $127,634,861
10 American Heritage PA $112,614,827

DCU ranked second among all U.S. credit unions in sold participation loans outstanding at year-end 2018.

Participation Portals

Phil Love, President and CEO, Pactola

Pactola begins the participation process by partnering with the lead lender to craft a term sheet that defines the terms of the loan without yet committing to it. Then there’s information gathering and underwriting and a report created for the proposed lead lender, who decides how much of the credit they want to keep themselves.

After that, Pactola announces the availability of the participation credits to its network of more than 500 institutions, using its portal and a webinar that explains the features of the credit, analyzes the risk, and explains the borrower and guarantors. 

“We allow possible participants to view the entire loan file on our proprietary loan file sharing portal. That way the buyer has the opportunity to view the entire loan file prior to making a decision on the credit,” Love says.

That same portal also provides access to due diligence and closing documents, participation agreements, and the servicing arrangements themselves through a specialized lending platform.

Read more on the loan participation workbook from Pactola that tracks everything from policies and procedures to closing documents to servicing details in our Policy Exchange today. Don’t have access? Learn more here.

5 Tips For Participation Purchasing

Phil Love, president and CEO of Pactola, shares these tips on buying loan participations, gleaned from his perspective at the helm of a CUSO that specializes in sharing commercial loans among credit unions.

  • Start with a good business loan participation that describes what types of loans you want. Define this by geography, industry type, etc.
  • As a loan buyer of participations, you must show you did your due diligence on the credit request, the selling institution, and the servicer.
  • Don’t be afraid of the larger commercial or agricultural deal. Partner with entities that can help underwrite, market, and service the credit.
  • Be prepared to face extra scrutiny with the examiners. You should have as good of a command of the participated credit as you have on any of your own credits.
  • Seek credits with servicers that have a strong platform for reporting, access to the loan file, and communication.

DCU also is going the portal route, developing an offering with two sections: one a marketplace, the other for servicing.

Roy describes the marketplace as a “one-stop shop” for buyers and sellers to connect. It includes virtual private rooms where parties can exchange documents and negotiate on pricing. When an agreement is struck, the portal guides both sides through the process, ensuring each step is completed along the way.

“Our focus is to develop a collaborative industry tool which will simplify and create transparency through each step of the participation process,” the DCU lending chief says.

The portal itself will address what DCU considers the two major pain points in loan participations: operational and reporting requirements, and finding participants.

“The marketplace for loan participations is in the beta stage with a number of credit unions signed on as test users. We’re looking for more credit unions to join and provide feedback as we consider it an invaluable part of the portal’s design and functionality,” says DCU financial analysis manager Hoang Nguyen.

“On the servicing side, we’re still in the process of working with our software development partner and hope to get a beta out for testing this fall,” Nguyen says. He invites credit unions interested in learning more to contact him at

Want more credit union strategies? Sign up for the free newsletter.




March 1, 2020


  • You may want to double check your stats for Hershey FCU...
  • Excellent article. Our CUSO works with credit unions nationally, participating Government Guaranteed loans.The credit unions I work with have a cooperative spirit that I really appreciate. Last year our participation program helped close nearly $500 million in USDA and SBA loans. This could not have been accomplished without credit unions working together.
    Bill Mullally
  • Thanks for your observation, Bill.