In the last year-and-a-half, Sharestates has seized the opportunity to expand our offerings in the private lending space. We’ve already discussed correspondent lending and how we help leverage capital for our clients. Today, we’re going to discuss table funding.
First, what is table funding?
What Table Funding Is and How It Helps Lenders
Table funding is a leveraged lending strategy that helps smaller lenders present themselves as direct lenders even if they don’t have enough capital to cover some loans. It’s often referred to as “wholesale lending” or “white label lending”.
Essentially, table lending works like this: A borrower applies for a loan through Lender A. Lender A goes to Lender B and says, “I need a loan.” When the paperwork is prepared between Lender A and the borrower, Lender A appears to be the true lender, but the capital for the loan is provided by Lender B. Lender A assigns the loan to Lender B, who provided the capital. This type of lending is called table funding because the funds for the loan are provided at the table when the documents are being signed.
Another phrase often used in exchange for table funding is “wet funding.” The alternative is “dry funding”. However, not all states allow dry funding.
What’s the Difference Between Dry Funding and Wet Funding?
Wet funding refers to a process where the entirety of the funding transaction takes place at the same time when all the documents are signed.
For instance, Lender A and the borrower meet to sign the loan documents. Lender B’s presence isn’t necessary since they already have an agreement in place with Lender A that the loan will be assigned to Lender B upon closing. After the documents have been signed, the closing agent receives the wired funds from Lender B and disburses them to the borrower along with any fees associated with the transaction to the various parties.
With dry funding, no money exchanges hands at the closing. Instead, the lender providing the capital for the loan receives the paperwork, reviews it for signs of fraud, and approves the transaction. After that approval, the funds are disbursed. The process usually takes one to four days.
Table funding is not legal in every state. In fact, the following states are dry funding states. All other states allow for wet funding.
- Alaska
- Arizona
- California
- Hawaii
- Idaho
- Nevada
- New Mexico
- Oregon
- Washington
If you are a small lender and you’re looking to table fund loans, you’ll need to make sure that wet funding is legal in the states in which you operate.
Table Funding is Not Always a White Labeled Product
One important consideration for table-funded loans is whether those loans can be provided under a white label agreement. In other words, can Lender A issue the loan to the borrower in its own name?
Some larger lenders that provide table-funded loans to smaller lenders will not offer white labeling. While that’s perfectly legal, ethical, and benefits all parties financially, it is not the gold standard in table funding. A white labeling agreement allows the true lender to issue the loan to the borrower in their own name. That lender becomes the loan’s originator even if the loan is funded by another lender. This is legal, ethical, and acceptable by industry standards in every state where table lending is legal.
The Difference Between Table Funding and Selling Loans
There is an important distinction between table funding and loan selling. They are not the same thing.
When a lender sells a loan, they are usually the loan originator and often are the underwriter, as well. The lender issues a loan to a borrower and then sells the loan—typically in bulk along with other loans—to another lender, who then becomes the loan’s servicer. This process favors the original lender because they can remove a large block of loans from their balance sheet and gain liquid capital in return ensuring they have the capital to issue more loans.
There are other ways larger lenders can provide loans for smaller lenders that don’t involve table funding. For instance, the lender could seek bank financing or loan syndication, a process that involves receiving capital from multiple institutions that pool their capital together to fund a loan.
Table funding is a great alternative to all these methods of providing capital to small lenders who want to lend directly to their customers and appear as the loan originator and underwriter.
The Benefits of Table Funding for Small Private Lenders
Small lenders have an advantage in servicing their customers because they can offer personalized services where large, national lenders fall short. However, they often lack the funds to provide all the loans they’d like to underwrite. That’s why seeking capital from a larger lender can be a big boost to the smaller lender’s business. Table funding is a viable option.
Table funding gives smaller lenders the ability to originate a loan with little or no cash on hand and with limited technology or supporting infrastructure. Furthermore, sophisticated table funders provide brand protection for the small lender. The table funder assumes the risk for the loan because they are the underwriter. That frees the true lender from the requirement of legal representations and warranties.
In essence, table funding provides small lenders with less risk, more leverage, and a way to capitalize loans otherwise outside their funding ability.
Contact Sharestates Today for Your Table-Funded Loan
Sharestates works with small lenders to fund loans that may be outside their capital control. If you’re a small lender and would like to receive a loan to cover new loans you’d like to underwrite, Sharestates will work with you to provide you with the funds you need to service your borrowers, and we’ll white label the lending so that you are the true lender.
Today’s real estate climate is the best time to underwrite new loans. With a housing shortage, there is not enough inventory to provide homes for every potential home buyer who wants one. As a result, home prices are rising. This is good for sellers and lenders.
As a lender, you’ll earn more in the long run by selling more loans. The more capital you have access to, the more loans you can provide and the more interest you can collect on those loans. Now is the best time, historically, for real estate investors and the lenders who support them. Contact Sharestates today to learn more about our white-labeled table-funded loans.
Need help structuring your next real estate deal? Contact Sharestates’ VP – Correspondent & Strategic Partnerships, David Young
