How does a forward flow agreement work for a lender?

A forward flow agreement is an investor's standing promise to buy a lender's new loans as they are made, at a formula price, up to a ceiling and for a fixed term. Filed examples run from one year to five: Ally committed $375 million to Carvana's auto loans for 364 days, CarVal bought Signet's new receivables for five years.

A forward flow buys the loan, where a warehouse line only lends against it

A warehouse line is a revolving loan secured by loans the lender has already funded with its own money. It advances a share of their value and the lender fills the rest with equity. A May 2024 practitioner note on these deals by the law firm Weil puts that share at «70-90% of portfolio value». A forward flow buyer pays for the whole loan instead: the funder «funds 100% of an asset's par asset value (potentially plus a premium …)», often with part of the price deferred until the loans perform.

The filed contracts make the sale literal. In Signet's 2018 agreement with funds managed by CarVal Investors, Exhibit 10.1 to its Form 8-K, «one hundred percent (100%) of each Forward Flow Receivable … shall be sold by Seller to Company without recourse», and both sides intend «a true sale» and «not a secured borrowing». The loan leaves the lender's balance sheet on the day it is sold, two business days after it is made.

That is the trade. Weil writes that forward flow lets an originator «use the funder's balance sheet to originate loans (rather than its own funds, which would be more limited in the case of newer Fintech originators)». What the lender gives up is the loan's yield above the price it was paid: in a warehouse line that spread stays with the lender, in a forward flow it goes to the buyer.

The price is a formula, and the buyer keeps the right to reset it

Under the agreement Signet filed with the SEC, it sold each new receivable for «the outstanding amount of all unpaid principal amounts … multiplied by … one hundred percent (100%) minus the Discount Rate, plus … any Interim Interest». The rate itself is redacted in the filing. A schedule to the agreement resets it after each review of the portfolio's performance data, so that the price «represents a fair market value», and an agreed change applies back to the first day of the period. If the two sides cannot agree within ten business days, senior officers get fifteen more, and after that the old rate stands.

Carvana's buyer priced with its own model. The agreement with Ally Bank and Ally Financial, Exhibit 10.22 to Carvana's Form S-1, says the «Pricing Model shall be delivered by the Purchaser to the Transferor in a Microsoft excel file format», fed each week by an initial data tape of every loan Carvana made: the loan tape is what the buyer prices. Ally could change the model on 90 days' notice, or on 30 if quarterly vintage losses, the losses of the loans made in each quarter, ran 15% away from its assumptions or the two-year prime ABS spread rose above 0.75%. If no change was agreed within 30 days, Ally could stop buying.

The seller has a floor too. Carvana was not obliged to sell any pool whose price was «less than or equal to» its outstanding principal, so the contract ran at a premium or not at all. Seasoned loans sell differently: Signet's existing non-prime book went once, at a «Back Book Discount» of 72.0%, a price the new loans did not carry.

The commitment has a ceiling, a share and a clock

In the Form S-1 exhibit, Ally's commitment was $375 million, less 62.5% of any eligible contracts Carvana sold to someone else, and it ran to «the 364 day anniversary» of the agreement. Each week Ally bought one pool of at least 51% of the eligible loans made two weeks earlier. The loans were chosen by the last two digits of the contract number: at 85%, contracts ending 01 to 85 were sold and 86 to 00 kept.

Signet's agreement, filed with its Form 8-K, runs five years and takes every new non-prime receivable. Forty-five days before each fiscal year Signet sends a volume forecast; it pays a fee if purchases fall short, and the buyer may stop buying, on ten business days' notice, once purchases run above an agreed level. Signet could move up to 30% of the flow to a second buyer, and did: Castlelake took 30% «at the same discount rate», CarVal kept 70%.

Recent commitments are announced rather than filed. Pagaya said on 9 August 2024, in a release filed as Exhibit 99.1 to its Form 8-K, that Castlelake would buy up to $1 billion of loans «on a monthly basis for an initial 12-month term». Upstart said on 6 May 2025 that funds managed by Fortress would buy up to $1.2 billion through March 2026, and that «Citi will provide the debt financing to Fortress». The buyer of a forward flow often borrows against the loans it buys.

The lender keeps the servicing, the warranties and sometimes part of the price

Selling the loan does not end the lender's work. In the Carvana agreement filed with the SEC the servicer is paid one twelfth of a servicing fee rate on the pool balance each month; the rate was agreed separately and not filed. Signet must buy back any receivable that breaks a warranty or was originated by fraud, within «five (5) Business Days», and credits the buyer for any dilution.

Part of the price can wait. Signet's release of 2 July 2018, filed with the SEC, says it received $445.5 million for its existing non-prime book «net of a 5 percent holdback», which «may be paid out at the end of two years depending on the performance of such receivables». Weil describes the same device in forward flows: deferred consideration, «payable where certain performance conditions are met», in place of the first-loss tranche a lender holds in a warehouse.

The exits are short. A buyer that fails to pay Signet has two business days to cure before Signet may sell the flow to someone else. Ally could end its commitment if Carvana or an affiliate had more than $20 million of other debt accelerated. Signet wrote its buyer's exit into its own leverage ratio, so a lender's balance sheet can end the flow even when its loans perform.

In Mexico the same purchase runs through a trust and is called a warehouse

We found no Mexican transaction publicly described as a forward flow. The function exists under another name. IDB Invest's line for Konfío, signed on 17 September 2020, lent up to 1,140 million pesos to a Mexican special purpose vehicle, half committed and half uncommitted, and the vehicle could «only use the proceeds … to purchase and accumulate MSME loans, originated by Konfío, in according to eligibility criteria acceptable to IDB Invest, for their future securitization».

Rights to the loans pass to such a trust or SPV by cesión de derechos, the assignment of credit rights under Mexico's federal Civil Code. For a Mexican lender reading a term sheet, the label matters less than three questions the filed contracts answer: who owns the loan after the sale, how much of each loan is paid at once, and who may change the price.

Terms, quotations and amounts are as written in the agreements and releases named; the own-money table is our computation from Weil's range and Signet's holdback, and the redacted figures are not estimated.