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Participation
Also called syndication, participation agreement, syndicated deal.
An arrangement in which one funder sells part of a transaction's economics and risk to others while continuing to service the deal and hold the merchant relationship.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
One funder originates, underwrites and funds. Others take a share of the funding and a corresponding share of the collections, documented in a participation or syndication agreement between them. The merchant contracts with the lead only and usually never learns the deal was syndicated.
The lead services: it takes the debits, handles collections, fields reconciliation requests and decides what to do when the deal goes wrong. What it cannot always do alone is change the terms. Participation agreements commonly require participant consent - sometimes unanimous - for restructures, settlements, discounted payoffs and litigation decisions.
Syndication is how smaller funders write larger deals and how ISOs put their own capital into files they originate. In SBA lending the same mechanism exists in a more formal register, with participations sold in the guaranteed portion on a secondary market.
Where this one catches people
The merchant never sees this, but it explains an otherwise puzzling rigidity. A servicer that needs participant consent to discount a payoff or restructure a distressed deal genuinely cannot decide alone, and 'I have to check with my investors' is sometimes a literal description of the constraint rather than a negotiating tactic.
Where you will meet this term
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Participation — common questions
What does participation mean?
An arrangement in which one funder sells part of a transaction's economics and risk to others while continuing to service the deal and hold the merchant relationship.
Where does participation catch people out?
The merchant never sees this, but it explains an otherwise puzzling rigidity. A servicer that needs participant consent to discount a payoff or restructure a distressed deal genuinely cannot decide alone, and 'I have to check with my investors' is sometimes a literal description of the constraint rather than a negotiating tactic.
Is participation the same as an interest rate?
Participation is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does participation apply to?
Merchant Cash Advance, Working Capital, SBA Loan.
Is there a worked example of participation?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside participation?
ISO agreement, Payoff quote, Portfolio, Residual, Restructure.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.