A funded sub participation agreement is a type of financing arrangement that is commonly used in the banking industry. In this arrangement, an existing lender (the lead lender) agrees to sell a portion of its loan to a new lender (the participant), who will then assume a portion of the credit risk associated with the loan.

The participant in a funded sub participation agreement typically receives a percentage of the loan amount equal to the percentage of the credit risk it assumes. For example, if a lead lender has a $10 million loan and agrees to sell 50% of the loan to a participant, the participant will assume 50% of the credit risk associated with the loan and receive $5 million.

Funded sub participation agreements are commonly used in situations where the lead lender wants to reduce its credit risk or free up capital for other lending activities. By selling a portion of the loan to a participant, the lead lender can reduce its exposure to a single borrower or industry sector, and potentially diversify its loan portfolio.

There are several advantages to using a funded sub participation agreement. First, it allows lead lenders to limit their exposure to credit risk, which can be especially important in industries or regions that are experiencing economic or political instability. Second, it can help lead lenders free up capital for other lending activities, which can be especially important in highly competitive lending markets. Finally, it can help participants gain exposure to new borrowers or industry sectors that they may not have otherwise been able to access.

However, there are also some potential drawbacks to using a funded sub participation agreement. For example, participants may not have as much control over the loan as they would if they originated the loan themselves. Additionally, participants may be subject to the same credit risk as the lead lender, which may limit their ability to diversify their loan portfolio.

If you are considering using a funded sub participation agreement, it is important to carefully evaluate the risks and benefits of this financing arrangement. You may want to consult with a financial advisor or attorney who has experience with these types of agreements to help you make an informed decision.