What type of loan is a collaboration among lenders to share in a loan that is too big for one lender?

A participation loan is a financial arrangement in which multiple lenders come together to fund a loan that is larger than what any single lender is willing or able to provide on their own. This type of loan allows lenders to mitigate risk by sharing both the financing and the risks associated with the loan.

In a participation loan, each lender participates with a share of the total loan amount, and they often have a corresponding right to a portion of the interest earned from the borrower. This structure is particularly advantageous for large-scale projects, such as commercial real estate developments, where the funding requirements might exceed standard lending limits. By working collaboratively, lenders can provide the necessary capital while also balancing their exposure to risk across multiple loans.

The terminology and concepts related to participation loans are well established, and this form of financing is a common practice in the real estate finance sector, especially for high-value transactions. Therefore, the significant feature of the participation loan is its collaborative essence, which allows multiple lenders to come together to serve a need that would be otherwise unfeasible for a single lender.