DEFINITION of 'Loan Participation Note - LPN'

A fixed-income security that permits investors to buy portions of an outstanding loan or package of loans. LPN holders participate, on a pro rata basis, in collecting interest and principal payments. Banks or other financial institutions often enter into loan participation agreements with local businesses, and also offer loan participation notes as a type of short-term investment.

BREAKING DOWN 'Loan Participation Note - LPN'

To meet the needs of local borrowers and to increase loan income, many community banks use loan participation agreements in which one or more banks share in the ownership of a loan. Community banks have also formed lending consortiums, such as the Community Investment Corporation of North Carolina (CICNC), an affordable housing loan consortium that provides long-term, permanent financing for the development of low- and moderate-income multifamily and elderly housing throughout North and South Carolina.

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