What Is A Loan Participation Agreement

Has your institution considered credit participations? What are the biggest concerns of your management team when it comes to pulling the trigger to become a loan participant? While the risks associated with credit holdings have serious repercussions, you can take steps to reduce these risks and protect the parties involved. One way for lenders to combat the challenges associated with these loans is to make sure you have an experienced team working to facilitate the deal. In synthesizing this “standard of care” clause, it is less important to know how other banks would treat the loan and the management of the loan, as if the lead bank had settled the loan in accordance with its own internal standards. This provision does not use an economic suitability analysis, but the norm is whether the lead bank treated the loan as if it were its own. The “Standard of Care” clause provides a general standard of care to guide the bank`s conduct with respect to the loan. However, the lead bank should withdraw its liability to the participant by means of a disclaimer clause. In the case of participations, the contractual relationship goes from the borrower to the LeadBank and from the lead bank to the participants, while in the case of syndications, the financing of each member of the syndicate to the borrower is carried out in accordance with an agreement negotiated jointly with each member of the syndicate that has a direct contractual relationship with the borrower. .

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