Haircut
A haircut is the part of a pledged loan that a warehouse line or credit facility does not finance. It equals the loan balance minus the advance, and the lender funds it with its own capital.
How a haircut works
A haircut is the other side of the advance rate. If a line advances 75% of a loan, the haircut is 25%: on a $400,000 loan the lender puts in $100,000 of its own cash and borrows $300,000. The haircut protects the line provider: if the loan defaults and has to be sold or foreclosed, the provider has a cushion before its own advance is at risk.
The Federal Reserve’s research on mortgage warehouse lines describes the draw as the loan balance minus a haircut, and notes that providers can mark collateral down and call for more cash (a margin call) when its value falls.
What a haircut really costs
The haircut is not a fee, but it has a cost: it is equity sitting in a loan instead of funding the next one. Private lenders often hold bridge and construction loans for months, so that cash can be tied up for a long time. When you compare funding options, include the return you could earn on that capital elsewhere, not only the line’s interest rate.
Example
Hypothetical. A $500,000 loan on a line with a 25% haircut ties up $125,000 of your cash for as long as the loan is on the line. If the loan stays six months, that $125,000 can’t fund anything else for six months.
With table funding or direct capital placement there is no haircut: the capital partner funds the whole loan at closing.
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.