Forward Flow
Pre-committed purchase agreements for originated loans, at a discount
A Forward Flow Agreement is a pre-committed arrangement in which the Market (via an SPV) agrees to purchase a defined volume of loans originated by the originator, at a pre-negotiated discount rate. The originator focuses on origination and servicing; the Market provides committed capital for a predictable stream of assets.
Forward Flow Agreements decouple origination from funding — originators scale with confidence that capital is committed, while investors access a diversified, continuously refreshed loan portfolio.
How It Works
Under a Forward Flow Agreement, the originator and the Market establish a binding commitment: the originator will originate and sell a specified volume of eligible loans over a defined period, and the Market will purchase those loans at a pre-agreed discount to face value.
This structure decouples origination from funding. The originator can scale origination with confidence that capital is committed, while investors gain access to a diversified, continuously refreshed loan portfolio.
Capital Flow
Investors → Market (SPV) ←→ Forward Flow Agreement ←→ Originator
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Originate loans → Sell to SPV at discount
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Borrowers repay → Collections → SPV → InvestorsAgreement is established with defined volume, discount rate, eligibility criteria, and duration.
Originator originates loans through its normal lending operations.
Eligible loans are sold to the SPV at the agreed discount rate. True sale transfer ensures the SPV owns the loans outright.
Originator continues servicing - managing collections, customer relationships, and default recovery on behalf of the SPV.
Borrowers repay according to the loan terms.
Collections are distributed to investors through the SPV waterfall.
Key Parameters
Discount Rate
The discount rate is the price at which the SPV purchases loans from the originator, expressed as a percentage of face value. For example, a 5% discount rate means the SPV purchases a $100 loan for $95. The $5 difference, plus any interest collected over the loan's life, constitutes the gross return.
Discount rates are calibrated based on:
Expected loss rates of the originator's loan portfolio
Loan tenor and amortization profile
Originator servicing quality and historical performance
Market risk-free rate benchmarks
Volume Commitment
The agreement specifies a target volume of loans to be purchased over the contract period. Volume commitments may be structured as:
Fixed commitment: The Market agrees to purchase a defined dollar amount of eligible loans per month or per quarter.
Ramp-up schedule: Volumes increase over time as the originator scales and performance data builds.
Maximum commitment: A cap on total purchases over the agreement's lifetime, with flexibility on timing.
Eligibility Criteria
Not all loans originated qualify for purchase under the Forward Flow Agreement. Eligibility criteria define the acceptable parameters:
Loan size range: Minimum and maximum individual loan amounts.
Borrower profile: Credit score minimums, business type restrictions, geographic eligibility.
Loan tenor: Maximum and minimum loan duration.
Interest rate range: Acceptable coupon rates on purchased loans.
Delinquency status: Only current, performing loans are eligible. Loans in arrears at the point of sale are excluded.
Performance Triggers
Forward Flow Agreements include performance-based mechanisms that adjust the relationship as portfolio quality evolves:
Volume reduction triggers: If default rates exceed a defined threshold, the Market can reduce its purchase commitment.
Discount rate adjustment: If portfolio performance deviates materially from expectations, the discount rate may be renegotiated.
Termination triggers: Severe deterioration in portfolio quality can trigger early termination of the agreement.
Structural Protections
Forward Flow Agreements incorporate structural protections specific to the loan purchase model:
True Sale: Loans are transferred to the SPV via a true sale, removing them from the originator's balance sheet. True sale opinions are obtained from independent legal counsel.
Originator Risk Retention: The originator may be required to retain a portion of each loan sold (typically 5–10%), or maintain a reserve account as a first-loss buffer.
Servicing Continuity: A backup servicer is pre-identified and operationally prepared to assume servicing if the originator is unable to continue, with defined transfer triggers and data access provisions.
Collection Account Control: Loan repayments are directed to a controlled collection account managed by the SPV or a designated trustee, ensuring ring-fencing and proper waterfall distribution.
See Structural Protections for the full framework including tranching, insurance coverage, and SPV ring-fencing that apply across all facility types.
Use Cases
Forward Flow Agreements are well suited for:
Fintech lenders: Digital lending platforms with high-volume, standardized loan origination that need committed funding to scale.
Invoice financing platforms: Platforms that purchase invoices from SMEs and need capital to fund their purchase pipeline.
Consumer credit originators: Lenders originating short-term consumer loans with predictable portfolio characteristics.
Embedded finance providers: Platforms offering financing at the point of sale that need committed capital to support their lending operations.
Example
Example: Southeast Asia SME Lending
A fintech platform in Southeast Asia originates short-term SME loans (90-day tenor, average ticket $10K) to small businesses in the food and beverage sector. The Market is structured as a Forward Flow Agreement:
Monthly volume commitment: $500K in eligible loans
Discount rate: 6% (SPV purchases at 94 cents on the dollar)
Eligible loan tenor: 60–120 days
Maximum single borrower exposure: $50K
Originator risk retention: 5% per loan
Performance trigger: Agreement pauses if 90+ day default rate exceeds 5%
Target yield: 10–12% annualized for investors
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