The Loan Participations department is both a buyer and a seller of commercial loan participations. The need for a commercial loan participation primarily arises from one of 2 scenarios: 

1. A bank has reached its collective credit exposure limit for the client, or 
2. The loan is too large or risky for one bank to manage the loan by itself.

Loan participations allow for a lead bank (the seller), who owns the client relationship and is looking for another bank to share in the loan, and a participant bank (the buyer), who buys a share of the loan and effectively becomes a co-lender. 

By way of example, assume Capital City Bank (CCB) has a client to whom we have already made 4 loans totaling $8MM, and they want to borrow another $4MM. In order to stay within our $10MM credit exposure limit, we (as lead bank/seller) would find another bank to be the participant bank/buyer, wherein they buy a $2MM share of the new $4MM loan, thereby allowing us to help our client. 

In the example described above, CCB would be the lead bank. Conversely, CCB often buys shares of loans from other banks where we function as the participant bank. All of the loans that CCB participates in (as either seller or buyer) are typically fairly large and complicated Commercial & Industrial (C&I) loans or Commercial Real Estate (CRE) loans. 

As a seller, participations allow the Bank to maintain relationships and continue to make loans to clients even after we have surpassed the credit exposure limit. As a buyer, participation allows the Bank to gain diversification (both geographically and by loan type) in the Bank’s loan portfolio.

While not contained within Loan Participations' area per se, the types of loans that are typically participated in are almost exclusively originated by a lender either in the Bank’s C&I or CRE group, and who has asked the Participations department to help find a participating bank to buy a share of the proposed loan. 

When CCB sells a participation, Loan Participations helps to identify the buyer and consummate the closing of the participation, but the CCB loan officer who originated the loan continues to be responsible for all facets of managing the client relationship, including interaction with the buyer or participating bank. On the other hand, when CCB buys a participation, the manager of the Loan Participations department is solely responsible for managing CCB’s share of the loan, including all interactions with the loan officer at the lead bank.

The types of loans that make suitable candidates for either a participation purchase or a participation sale are typically large and fairly complex credits. As such, any referrals would likely not involve any CCB associate(s) other than the relationship manager who “owns” the client relationship in the case of participation sales. For participation purchases, CCB has a core network of banks with whom we routinely buy and sell participations, and in the case of a participation purchase opportunity, the selling or lead bank usually communicates directly with the manager of CCB’s Loan Participations department.