Credit unions are in a tough spot right now. Unpredictable rates, changing member habits, and liquidity concerns are making it harder to keep balance sheets in check.
Some credit unions have too much money sitting idle. Others have loan demand but need more liquidity to keep lending. Either way, finding the right balance isn’t easy.
Loan participations put capital to work… or frees up funds when needed. Instead of letting excess liquidity sit around or turning away good loans, credit unions can buy or sell portions of loans to keep things moving.
The strategy has been around for a while, but it’s all the more valuable these days (*coughs in 2025*).
Why Loan Participations Help with Lending and Liquidity Management
Loan participations are a way for credit unions to help each other out. Here’s how it works:
- One credit union with strong deposits but slow lending can buy into loans originated by another credit union.
- The seller gets liquidity.
- The buyer gets interest income without having to go find new borrowers.
- Another credit union that is strong with lending can keep the pedal down, without disrupting their business plan.
- Better yields than investments. Everybody wins.
This also helps credit unions control risk. If an institution is overloaded with one type of loan—say, too many auto loans—it can sell off a portion and diversify its portfolio. That reduces exposure to market swings and spreads out risk.
Right now, credit unions are dealing with a lot of uncertainty. Loan demand isn’t as predictable as it used to be. Some members are holding back on big purchases. Others need small-dollar loans or HELOCs to manage rising costs.
Loan participations let credit unions adjust quickly without making drastic changes to their own lending strategy.
How Loan Participations Actually Work
The process isn’t as complicated as it sounds:
A credit union that wants to sell loans picks which ones to offload. It shares details with potential buyers, who decide if the loans fit their needs. If it’s a good match, both sides sign a participation agreement and the deal moves forward.
Credit unions buying loans need to do their homework. They check loan quality, make sure underwriting standards are solid, and review servicing policies.
Regulatory guidelines require proper documentation and risk management, but credit unions have been doing this for decades, so it’s nothing new.
One of the biggest changes in recent years is how much easier technology has made this process. Loan participations used to be handled mostly through manual paperwork and one-off agreements. Now, there are platforms and networks that make it much smoother.
This is probably where we should plug our partners, Quilo and Painted Hills CUSO. They’re not the only loan participation game in town, but we think they’re the best (and we’d be more than happy to explain why).
Why More Credit Unions Should Look at Loan Participations
Balance sheet management is getting harder. Some credit unions are holding more liquidity than they need. Others are hitting their lending limits but don’t want to stop helping members. Loan participations solve both problems.
But here’s the real talk:
Right now, the stock market jumps with every tweet and press conference. Loan delinquencies are rising, and inflation looks like it’s on its way back up.
Oh, and the NCUA has balance sheet risk on its 2025 bingo card again.
Amid that kind of instability, loan participations are a rare bit of stability.
They offer more stable income while spreading out risk, supporting loan growth, and creating stronger partnerships between credit unions. If you want to stay competitive in a weird economic climate, they’re worth a second look.
You can take that second look here: https://cu-2.com/loan-participations/
