Advance rate
The advance rate is the percentage of a pledged loan’s balance that a warehouse line or credit facility lends against. The lender funds the rest, the haircut, from its own capital.
How the advance rate works
When a lender draws on a warehouse line, the provider advances a percentage of each pledged loan, not the whole balance. An advance rate of 75% on a $400,000 loan means the line funds $300,000 and the lender funds $100,000 itself. Federal Reserve researchers describe the same structure for mortgage warehouse lines, where the amount borrowed is the loan balance minus a haircut.
Advance rates are set by the provider and vary with the loan type, the collateral, the lender’s profile and how long the loan stays on the line. Some agreements step the advance rate down as a loan ages, or as it moves from purchase to construction to completed.
Why it matters to a private lender
The advance rate decides how much of your own money each loan ties up. The lower it is, the more cash you need per loan and the fewer loans your equity can support at once. Two lines with the same interest rate can have very different real costs if their advance rates differ.
Example
Hypothetical, round numbers. With $1,000,000 of your own capital and a 75% advance rate, each $400,000 loan needs $100,000 of your cash, so you can carry about ten loans at once. At an 85% advance rate, the same capital carries about sixteen.
Try your own numbers in the warehouse line cost calculator.
Where Lender Capital fits
Lender Capital places first-lien, business-purpose real estate loans with capital partners. You apply once, then submit each loan with the full file. We send it only to capital partners whose criteria it fits, one partner funds the whole loan at closing and it is assigned to them. You keep your points (less the placement fee), earn the spread above the partner’s rate and service the loan. You pay a placement fee only when a loan funds.
Lender Capital is a business-to-business platform. This page is general information, not legal, tax or securities advice. Terms of warehouse lines and other funding sources vary by provider; confirm them with each provider and your counsel.