Most early facilities are forward flow (you sell the loans) or a warehouse (you borrow against loans you hold). Warehouses come in flavors that behave very differently — true revolver vs delayed-draw term loan — and many first deals are staged: a simple corporate-recourse bridge first, a bankruptcy-remote SPV later. Learn the SPV cast of characters now; every one of them shows up on your invoice.
"We're raising a debt facility" is like saying "we're raising a round." Fine for a tweet, useless for planning. The structure you end up in determines your balance sheet, your equity needs, your ops burden, and what happens to your loans if your company dies. Here's the taxonomy.
The two base structures
Forward flow. You originate loans and sell them — generally at par (outstanding principal plus accrued interest) — to the debt provider. Not revolving: once capital is used, repayments go to the buyer, not back into your pipeline. You keep the origination fee and typically earn a servicing fee for continuing to manage the loans; the buyer keeps the loan economics. Simpler to negotiate, faster to close, and it moves the assets off your balance sheet — which also moves the credit risk, mostly, to someone else.
Warehouse / revolving. The lender funds against a pool of loans you originate and hold. Repayments replenish availability, so the same commitment can be recycled multiple times over the life of the book. Warehouses are generally cheaper per dollar deployed, come with more stringent requirements, and are the on-ramp to securitization later. You keep the loan economics; you also keep the first loss.
Which one you want depends on what you're optimizing for. Forward flow trades economics for simplicity and balance-sheet relief — a fine trade early, when your equity is scarce and your ops are thin. A warehouse keeps the upside and builds the track record you own — the track record that prices your next facility. Plenty of companies run both at once for different products.
You sell the loans
- Loans sold at par to the buyer — off your balance sheet
- You keep the origination fee, plus a servicing fee
- Buyer keeps the loan economics — and, mostly, the credit risk
- Simpler to negotiate, faster to close
You borrow against loans you hold
- Lender funds against a pool you originate and keep
- Repayments replenish availability — capital recycles
- You keep the loan economics — and the first loss
- Cheaper per dollar deployed; the on-ramp to securitization
Read the fine print on "revolving"
Here's a trap hiding in the vocabulary. Not everything called a revolver revolves.
A true revolver lets you repay and re-draw. Collections come in, availability goes back up, you fund new loans against it. The commitment is a pipe.
A delayed-draw term loan looks similar on the surface — a committed amount you draw over time — but repaid or prepaid amounts often cannot be re-borrowed. The commitment is a bucket, and every dollar that goes back to the lender is gone. Some structures allow recycling (collections inside the SPV can fund new assets) while still barring re-borrowing (repaid facility principal is dead) — read both mechanics separately.
The difference is enormous for a short-duration product. If your average asset pays back in 60 days, a $10M bucket funds roughly $10M of loans, once. A $10M pipe funds $10M of outstandings indefinitely — which for a 60-day product might be $50M+ of annual originations. Same headline. Completely different machine. Ask the question explicitly: what happens to availability when a loan pays down?
While you're at it, check the phases. Many facilities split life into a draw period (you can borrow, say months 1–24) and an amortization period (no new draws; collections sweep to the lender until it's repaid). A facility with a short draw window and a long amortization tail is much smaller than it looks.
The staging pattern: bridge now, SPV later
A pattern you'll see constantly in first facilities: the lender proposes a small, fast, structurally simple loan to your operating company now, converting to a proper bankruptcy-remote structure once the book is big enough to justify the setup cost. Something like: "a $5M corporate facility today, migrating into an SPV warehouse at around $10M of receivables."
The logic is sound for both sides. SPV setup is slow and expensive — legal opinions, new entities, account structures, service providers. Amortizing that over a $3M book is silly. The bridge gets money moving in weeks instead of months.
But understand what the bridge phase actually is: a full-recourse loan to your company, usually secured by a first-priority lien on all your assets — the loan book, the IP, the bank accounts, everything — often with a control agreement on your operating account. During the bridge, the whole company is collateral. There's no SPV wall protecting the business, because the SPV doesn't exist yet. Your job is to keep the bridge phase short, keep its size modest, and make sure the conversion terms (when, at what cost, with what guaranty step-down) are written down now, not left as "we'll paper the SPV when we get there."
The second half of the pattern: once the SPV exists and the book seasons, a cheaper senior lender (often a bank) can be layered on top, with your original credit fund dropping into a junior/mezzanine position. That's the standard cost-of-capital ladder — credit fund first, bank later, securitization eventually. Good facilities are designed with that migration in mind from day one; it's worth asking every prospective lender how they think about it, because "will you help me refinance you someday" is a surprisingly clarifying question :)
The SPV, and its cast of characters
Sooner or later you'll run a bankruptcy-remote SPV, so learn the anatomy now. The concept: a special purpose vehicle — a new legal entity, typically a wholly-owned subsidiary — buys or originates the loans and holds the bank accounts. The lender lends to the SPV, secured by the SPV's assets and a pledge of its equity, generally without recourse to the parent (with carve-outs we'll cover in Part 5). If the parent company hits an existential problem, the loans live on untouched, and the lender's collateral doesn't get dragged into the parent's bankruptcy. Every institutional lender will require one eventually.
"Bankruptcy-remote" is a discipline, not just an entity. It comes with rules — separateness covenants — that you will live with daily: the SPV keeps its own books, doesn't commingle funds with the parent, observes corporate formalities, and doesn't do anything except own loans. Break the separateness and you break the structure.
Around the SPV, a small industry of service providers appears. Each one is a real function and a real invoice:
Independent director
A professional director on the SPV's board whose one job is to vote on — and generally block — a voluntary bankruptcy filing. Supplied by corporate-services firms for a modest annual fee. Non-negotiable in serious structures.
Servicer
You collect payments, track balances, handle borrowers, and report — for a servicing fee, commonly ~1% annualized on outstanding balance. The fee isn't decoration: it's what a replacement would be paid, and it sits senior in the waterfall.
Backup servicer
Receives your data feeds continuously and can step in — and take the servicing fee — if you fail. "Warm" backups (regular sync, periodic testing) cost more than "cold" (data escrow only). Who pays is negotiable.
Verification agent
A third party that re-checks the numbers — sampling loan files, re-computing the borrowing base, confirming collections match reports. Not always required on day one; standard at scale.
Facility administrator
Runs the mechanics: borrowing-base math, waterfall payments, notices. Sometimes the lender does this themselves (occasionally free, occasionally for a fee); sometimes an outsourced platform.
Controlled accounts (DACAs)
The SPV's accounts sit under deposit account control agreements. Typical setup: a collections account (repayments land here; lender-controlled) and a funding account (draws land here). Cash then flows in a fixed order — the waterfall.
None of this is optional decoration you can negotiate away; it's the standard kit that makes non-recourse lending possible. What is negotiable: who pays for each piece, when each requirement kicks in (backup servicer at close, or only above $X outstanding?), and how heavy each version is. A first facility doesn't need the securitization-grade version of this stack. It needs the honest minimum — and a lender who's done early-stage deals will know what that is.
One more taxonomy note: everything above applies whether your product is consumer installment, SMB term loans, invoice finance, BNPL, or something weirder. The vocabulary transfers. The numbers don't. Short-duration assets recycle capital fast and make bucket-vs-pipe distinctions existential; long-duration assets make amortization mechanics and rate risk the story. Every time this guide gives a number, run it against your own product's duration before you internalize it.
Now — how you actually get someone to give you one of these.