FAQWhat is warehouse financing?

Warehouse financing is a line of credit used by lending businesses to fund loans issued to their borrowers. After a loan is issued to a borrower, the lender ‘pledges’ the loan to the warehouse facility as collateral and the warehouse provider advances a percent of the loan’s value to the lender. This enables lenders to store loans while they are waiting to be sold to an investor or pooled in a securitization. When a group of loans is ready to be sold or securitized, the lender purchases them back from the warehouse and then sells them to the end buyer. Traditionally the process of managing a warehouse facility is operationally intensive and time-consuming. The process of pledging loans involves significant paperwork and calculation to ensure that loans meet the credit criteria and borrower base requirements of the warehouse. Warehouse financing magnifies these operational costs because a loan is typically transferred between parties several times during the financing process.