Loan Participations for Community Banks: Today’s Ground Rules

Many long-standing “ground rules” for loan participations were reinforced during the recent economic downturn, plus we learned a few new rules the hard way.

This program covers the major issues involved in loan participations for community banks, both as lead bank or purchasing bank.


  • (New) Assess the financial position of your counterparty bank, and its ability to perform both financially and the required administrative functions of the loan participant
    • How compatible are the lead bank and participant bank?
    • Does lead bank have ability to provide timely credit information over the course of the loan? (Status of payments, collateral values and liens, financial information, etc.)
    • What experience and track record does either bank have with participations?
    • Does the participant bank have resources to deal with an extended workout, if necessary?
  • (New) Avoid out-of-market opportunities, or credits involving industries or project types where your own staff has no experience or expertise
  • (New) Concentrations are concentrations, whether originated or purchased
  • What is the purpose of the participation? (Why is the lead bank selling part of the loan?)
  • What are your rights and powers as lead bank or participant, as set out in the participation agreement?
    • Who controls access to the borrower?
    • Will the participation be disclosed to the borrower?
    • Who makes decisions to waive default or covenant violations?
    • Who can otherwise alter terms of the lending agreement, such as release or substitution of collateral?
    • Does the participant fund and get paid down “last-in-first-out,” or pro-rata? (Same question for collateral rights.)
    • If multiple participants, what are their rights and claims?
  • Does a joint or syndicated loan make more sense?
  • What happens when problems arise with the lead bank, participating bank or the borrower?


CRE lenders, commercial lenders, credit analysts, loan review specialists, special assets officers, lending managers and credit officers. Support personnel involved in the administration of loan participations are also encouraged to attend.


Richard Hamm has been training bankers for over 20 years, including creating and teaching courses for the ABA and the RMA, plus regional banking schools, numerous state banking and community banking associations, and individual banks.  While specializing in all phases of lending and credit, he also covers “top of the bank” issues and provides director training.

Credit Information

Institute of Certified Bankers: Visit http://www.icbmembers.org/login.aspx for instructions regarding self-reporting. Estimated credits: 2.5 hours CLBB.


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