How it works
The lender and the investor agree in advance which loans qualify: the product, the borrower types, the credit criteria and sometimes the price. The lender keeps making loans as usual. At regular intervals, or as each loan is made, the qualifying loans are sold to the investor, who pays for them.
The "forward" in the name means the investor commits to buy loans that do not exist yet. The "flow" is the stream of new loans moving from the lender to the investor over the agreement's life.
Why lenders use forward flow
- Capital-light growth. The lender does not need to fund the loans itself or borrow against them, so it can lend more with less equity.
- Lower risk on the balance sheet. Once sold, the loans' credit risk sits mostly with the investor, subject to whatever the lender keeps.
- Predictable income. The lender earns from origination and servicing fees rather than from holding the loans.
The trade-off is that the lender gives up most of the interest income the loans would have earned over their life.
Why investors use it
Forward flow lets an investor build a portfolio of loans it could not make itself, such as consumer loans, buy-now-pay-later receivables or small-business loans, using the lender's customer reach and credit decisions. The agreed criteria let the investor control what it buys.
What gets negotiated
Agreements commonly cover the eligibility criteria, the purchase price or how it is set, the maximum amount and period, servicing fees, what happens if a sold loan breaks the criteria, and performance conditions that let the investor stop buying. Some lenders keep a share of each loan or part of the risk so their interests stay aligned with the investor's. Terms vary widely and are rarely published.
Forward flow alongside other funding
Many lenders use forward flow next to a warehouse facility or a securitisation, for example selling one product or one country's loans while funding others on balance sheet. The comparison table shows the differences side by side.