Loan Participation
An increasing number of credit unions have begun offering member business services as a way to meet their members' needs and establish diversity in their portfolios. One way credit unions can build their portfolios quickly and safely is through loan participations.
It can take many years to gain portfolio diversification through individual institution efforts alone, but a credit union can achieve critical mass and attain business segment profitability more easily and quickly by participating in commercial loans with other credit unions. While entering the commercial lending market can be costly, many credit unions find that loan participations allow them to grow diversified portfolios inexpensively because they experience little to no origination, underwriting, or servicing costs.
Loan participations can increase your profit, while reducing your risk, provided the loans are purchased from a reputable source and you’ve done your homework. Any credit union with which you choose to partner should offer a high yield on your investment portfolio, high quality assets, and portfolio diversification. In addition, while meeting your ALM objectives and increasing your loan-to-share ratio, you should also experience efficiency by investing significant dollars in a single transaction.
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