The Pros and Cons of Participation Loans

Managing these loans requires a careful and calculated approach.

December 24, 2010
/ PRINT / ShareShare / Text Size +

Pros and cons

The conclusion of the white paper: Consider the pros and cons of loan participations and your credit union’s particular situation before getting involved.

Pros include that loan participations:

  • Provide a source for selling loans to keep under the 12.25% business lending cap;
  • Offer geographic and loan type diversification; and
  • Provide an average loan yield that can be three times the amount of the average investment.

Cons include:

  • Increased complexity of loan participations;
  • Greater risk; for example, when large participation loans go bad, hefty dollar losses are shared by all; and
  • Greater regulatory scrutiny, particularly following recent exposure of some banks’ excessive risk-taking. NCUA expects credit unions that put loan participations on the books to have the experience and expertise to assess risk. The burden is on the credit union to prove it.

Loan participations “have numerous advantages but are complex and attracting regulatory attention,” notes the white paper. “They need to be ‘done right’ to work, and require quality partners and resources or access to those resources. Programs profiled in this paper seem to indicate that the risks, if managed prudently, are well worth taking.”

Post a comment to this story


What's Popular

Popular Stories

Recent Discussion

Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

Your Say: Who should be Credit Union Magazine's 2014 CU Hero of the Year?

View Results Poll Archive