Private lenders who want to grow eventually run into the same constraint: their own capital. Every loan they hold ties up money that could fund the next one. The two most common ways around that constraint are borrowing against the loans with a warehouse line, or selling the loans outright. They solve the same problem in very different ways, and many lenders end up using both.
What a warehouse line is
A warehouse line is a revolving credit facility secured by the loans you originate. You fund a loan, pledge it to the line, and draw an advance against it. The advance is usually a portion of the loan balance, so you still contribute some of your own capital to every loan. When the loan pays off or is sold, the advance is repaid and the capacity becomes available again.
Lines come with terms that shape how you operate. These generally include eligibility criteria for which loans can be pledged, limits on how long a loan can sit on the line, concentration limits, financial covenants, reporting requirements and, in many cases, a personal or corporate guaranty.
What a whole-loan sale is
In a whole-loan sale, you sell the loan to a buyer. The buyer pays you for it, and the loan leaves your balance sheet. You can sell servicing-released, where the buyer or its servicer takes over the borrower relationship, or servicing-retained, where you keep servicing the loan for the buyer.
After the sale, you are generally not exposed to the loan's performance beyond the representations and warranties you made in the sale agreement. If those representations were accurate, the credit risk is the buyer's.
The core difference: who holds the risk
With a warehouse line, you still own the loan. If the borrower defaults, the loss is yours, and the line may require you to repay the advance or replace the collateral. Leverage magnifies both outcomes: returns on your equity can rise, and so can losses.
With a sale, the risk moves to the buyer. You give up the future interest income, and in exchange you get capital back and remove the exposure.
Comparing the two
Capital recycled
A line returns part of the loan amount. A sale returns the price agreed with the buyer for the whole loan. Which gets more capital working depends on the advance rate, the sale price and how quickly you can redeploy.
Ongoing obligations
A line is a relationship with covenants, reporting and eligibility rules that apply every month. A sale is a transaction. Once it closes, the main continuing obligations are your representations and warranties and, if you retain servicing, the servicing itself.
Flexibility
Lines often have strict eligibility rules. Loans that fall outside them, or that age out, may need to be removed. A whole-loan buyer with a broad buy box can take loans a line will not, but each sale is priced individually.
Effort per loan
A line, once in place, can make funding each new loan routine. A sale is priced on a tape or seller portal data, and then needs a file the buyer can diligence before purchase. A well-built file makes diligence fast; a thin one does not.
How lenders use both
A common pattern is to fund loans on a warehouse line and then sell them, repaying the advance from the sale proceeds. The line provides short-term capacity; the sale provides the exit. Other lenders skip the line entirely and sell loans shortly after closing, using the proceeds to fund the next loan. Some keep the loans they want to hold on the line and sell the rest.
The right mix depends on how much risk you want to keep, how much administrative work you want to take on, and whether your loans fit a lender's eligibility criteria or a buyer's buy box better.
What makes a sale work as a capital tool
For a sale to work as a regular part of your capital plan, you need a buyer you can rely on. Three things matter most:
- Speed. CorrFirst returns a bid within 24 hours of a tape or a registration in the CorrFirst seller portal.
- Certainty. Our bid holds through the commitment period unless diligence finds a material defect. After a bid is accepted, full-file review is why diligence moves fast, we close what we commit to, and we don't retrade.
- Flexibility. There are no minimums. Sell one loan or the whole book, servicing-released or retained.
Plan your capital around the purchase, not the bid. Funds move at purchase, once diligence is cleared and the collateral documents are received and cleared. Seller approval runs alongside submission, the bid and acceptance, so you do not need to wait for onboarding to see how a sale would work for your book.
Questions to ask yourself
- Do I want to keep the credit risk on these loans, or move it?
- How much of my own capital am I willing to keep in each loan?
- Do my loans fit a line's eligibility rules, or would a buyer take more of them?
- How much reporting and covenant management can my team handle?
If a sale belongs in your capital plan, get approved as a seller and you can submit your first tape while approval runs.
