Is liquidity tight and loan demand strong at your credit union? In the past, you’ve likely looked at selling loan participations to ease liquidity and create balance sheet capacity for continued loan demand. 
However, as interest rates rose during the early part of the year, you may have been hesitant to enter into a loan participation sale due to potential pricing below par. But with the potential for falling interest rates ahead, are there reasons to revisit this decision?
If you’ve had cold feet, give loan participation sales another look. What initially may seem to be a hurdle – like loan pricing – can be a small issue when you look at the bigger picture. When evaluating your total balance sheet position for the years ahead, selling loan participations may still offer some benefits.
Consider the following:
- If you believe rates will come down, it may make sense to sell a loan pool and redeploy funds from short-term assets into longer-term, higher-earning assets. Any potential short-term loss from loan pricing may be offset by an increase in net interest income, earned through a lower rate environment if the economy deteriorates.
- If liquidity is tight, selling a loan pool may be an appropriate choice to reduce your liquidity risk
- If loan demand is expected to remain strong, selling a loan pool can give you the additional capacity you need to originate additional loans for your members.
- Borrowing is one way to free up liquidity, but it may not be the best idea if you feel we are at the peak of the interest rate cycle, with falling rates ahead.
So, what should you look for in a loan participation provider?
A team of knowledgeable, seasoned financial experts with a well-established program can help your credit union standardize the loan participation process and unite with a large audience of credit union buyers.
A comprehensive, one-stop-shop, such as Catalyst Corporate’s Loan Participation Program, can simplify your credit union’s involvement in the loan participation process. This program brings together credit union originators wanting to sell loans with credit union buyers wanting to purchase an interest in a pool of loans. Services include packaging and marketing the loan pools, hosting due diligence information in a secure environment, and monthly remittance and reporting services after the transaction is completed.
When it comes to loan participation sales, don’t get hung up on pricing. It’s important to look at the big picture and examine your balance sheet position for the environment ahead. Now just may be the perfect time to take the leap and redeploy funds to enhance liquidity and stabilize your earnings through any potential economic weakness.