Participation loans are loans in which the funds for the loan come from two or more participating institutions. Each participant in the loan will have their portion of the loan in a separate loan group for the purposes of general ledger reporting. This model is useful for a lender who participates loans with a limited number of participating lenders.
The diagram below shows how a participation loan is distributed among its participants:
For an explanation of how to set up loan groups for participation accounting, see Loan Groups.
Alternatively, for those lenders who participate loans with a large number of investors, an alternate setup may be preferred in which each investor is not represented by separate accounts in your general ledger. Just like each loan is not separated out on the GL side, and NLS acts as your sub ledger, all of (or blocks of) the investors can have their GL report to an aggregate account while NLS acts as a sub ledger, maintaining the balance of the funds owed to each participant.