What's a warehouse line of credit?

A senior secured revolving credit facility, usually provided by a Wall Street investment bank or a specialty finance lender, that an MCA funder uses to finance its originations. The funder borrows from the warehouse, originates advances, and uses the receivables as collateral. The advance rate is typically 75–85% of eligible receivables.

How does the warehouse line affect my factor rate?

Heavily. The warehouse is the funder's primary cost of capital — usually 8–11% in 2026. Plus an advance rate of ~80% means the funder needs to fund 20% with their own equity (or LP capital). The blended cost of capital is roughly 15–20%. Add fees, losses, and target return, and you arrive at the factor floor.

Which banks provide MCA warehouse lines?

Goldman Sachs, JPMorgan, Credit Suisse (now part of UBS), Deutsche Bank, Barclays, and Morgan Stanley are the largest. Specialty providers include Pacific Western Bank's Square 1 division, BMO Capital Markets, Atlantic Capital, and CIBC. Each has its own credit box and covenant style.

What happens if the funder breaches a warehouse covenant?

First, a cure period — usually 30–60 days. If unresolved, the warehouse can suspend new fundings, force accelerated paydown, or in extreme cases call the loan. Funders dread covenant breaches because they cascade — losing one warehouse line often triggers cross-defaults with other facilities.

Why isn't this discussed publicly?

Warehouse facilities are confidential. The terms (advance rate, pricing, covenants) are tightly negotiated and the funder rarely discloses them outside of investor materials. Securitization prospectuses on the SEC's EDGAR system are the cleanest public window into how warehouse terms shape funder economics.

MCA bank warehouse lines — the detailed merchant's guide to the senior credit facility that quietly prices your advance (2026)

Almost every large MCA funder sits on top of a warehouse line of credit from a Wall Street bank. The cost and covenants of that warehouse line set the floor on what your factor rate can be. Here's the structure, decoded — and what it means for merchants in 2026.

The 60-second answer

A warehouse line of credit is the senior secured revolver an MCA funder uses to finance its origination engine. The funder borrows from the warehouse, writes a new advance, pledges the receivable as collateral, and repeats. The receivables sit inside a bankruptcy-remote SPV (special-purpose vehicle) that the bank perfects its security interest against.

The warehouse is the cheapest tier of capital in the funder's stack. It's also the tightest — bank lenders impose detailed eligibility tests on every advance, concentration limits on the pool, and covenants on portfolio performance. When the warehouse tightens, the funder tightens immediately.

Almost everything that happens to your factor rate, your underwriting timeline, and your renewal options can be traced back to what the warehouse line is doing this week.

The mechanics

Step 1: the funder sets up an SPV

A bankruptcy-remote Delaware LLC is created. The SPV's only purpose is to hold advances financed by the warehouse line. Bankruptcy-remoteness means that even if the parent funder fails, the SPV's assets are insulated from the parent's creditors. This protects the warehouse lender's collateral.

Step 2: the warehouse facility is signed

The bank and the SPV sign a credit agreement. Key terms:

Commitment size. $25M for an emerging funder, up to $500M or more for an established platform.
Advance rate. The percentage of receivable face value the bank will lend against. Typically 75–85%. The funder funds the remaining 15–25% with equity.
Pricing. SOFR + 350 to SOFR + 600 basis points, depending on the funder's risk profile and the asset quality.
Eligibility criteria. What advances qualify for warehouse financing — minimum credit score, geographic distribution, industry concentration, term length.
Concentration limits. Caps on exposure to any single state, industry, or merchant.
Performance covenants. Cumulative net loss limits, delinquency thresholds, weighted-average credit metrics.

Step 3: revolving originations

The funder originates advances daily. Each one is pledged into the SPV. Daily ACH cash flows come into the SPV and are first applied to interest owed on the warehouse line, then to principal repayment, then to any remaining cash that can be released to the funder for fees and equity returns.

Step 4: refinancing or take-out

Warehouse lines are revolving — but they're not permanent. Most facilities have a revolving period of 12–24 months, then convert to an amortization period. Funders typically take out warehouse-financed pools through securitization once the pool reaches $50–150M in face value. The securitization returns capital to the warehouse, freeing capacity for the next cycle.

How warehouse cost translates into your factor rate

Let's walk the math on a $50,000 advance:

Warehouse cost of funds. SOFR (currently ~5.3%) + 400 bps = 9.3% annualized.
Advance rate. 80% of the receivable. So the funder needs to put up 20% in equity.
Blended cost of capital. Warehouse cost on 80% + equity cost (~18–22%) on 20% = ~11.5% blended.
Operating cost. ~4% of capital deployed (underwriting tech, salaries, servicing).
Loss provision. ~9% on a tier-A book, higher on B/C/D paper.
Target net return. ~8% to clear LP hurdle and earn meaningful carry.

Stack those layers and the gross portfolio yield needs to be roughly 32% annualized just to clear costs and produce target equity returns. On a 12-month MCA, that translates to a factor of roughly 1.28–1.32 for tier-A paper. Move down the credit spectrum and the loss provision rises, pushing tier-B paper to 1.32–1.40 and tier-C/D to 1.40+.

The covenants that shape funder behavior

Cumulative net loss caps

The warehouse agreement specifies the maximum cumulative loss rate the pool can absorb before triggering a covenant default. Typical caps: 10–14% for a tier-A book, 14–18% for a tier-B book. As the pool approaches the cap, the funder tightens underwriting dramatically to slow new loss accrual.

Three-month rolling delinquency

The pool's three-month rolling delinquency ratio (advances missing payments) usually has a cap of 8–12%. Funders monitor this weekly. When it climbs, they push reconciliation teams to be more accommodative — keeping merchants paying anything is better than letting them default cleanly into the delinquency bucket.

Concentration limits

The warehouse may cap exposure to any single state (often 15–20%), any single industry (often 25–30%), or any single broker (often 10–15%). When a funder is near a concentration limit, new applications from that segment may be declined regardless of credit quality.

Weighted-average credit metrics

Some warehouses require the weighted-average FICO of the merchant principals to stay above 620, or the weighted-average monthly revenue per merchant to stay above $40K. As the pool drifts toward limits, the funder filters new applications to keep the averages in compliance.

What happens when a warehouse covenant is breached

Notification. The funder notifies the bank within 5 business days of becoming aware.
Cure period. Usually 30–60 days to bring the metric back into compliance. During the cure period, new fundings may be restricted or halted.
If not cured. The bank can suspend further advances on the line, force accelerated paydown of the balance, or in extreme cases declare an event of default. Most never reach the third step — funders work intensively with the bank to negotiate a waiver or amend the covenant.
Cross-default risk. Many funders have multiple warehouse facilities with overlapping covenants. A default in one can trigger cross-defaults in others. This is why funders move heaven and earth to avoid warehouse defaults — they're existential.

The 2026 warehouse landscape

The major banks active in MCA warehouse lending as of 2026:

Goldman Sachs. The largest provider by committed capital. Tight covenants, prefers funders with $100M+ origination volume.
JPMorgan. Active across multiple specialty finance verticals; MCA warehouse is one part of a broader specialty book.
Deutsche Bank. Long-standing presence in specialty finance, often the first warehouse provider for emerging MCA funders.
UBS (formerly Credit Suisse). Inherited Credit Suisse's specialty finance book. Pulling back somewhat after the 2023 transition.
Barclays. European balance sheet, active in U.S. specialty finance.
Morgan Stanley. Active in larger-ticket MCA facilities.
Specialty lenders. Pacific Western (Square 1), BMO Capital Markets, CIBC, Atlantic Capital — typically smaller commitments to emerging or mid-market funders.

What to ask

Who is your senior warehouse lender? The answer signals scale and credibility. A funder backed by Goldman or JPMorgan has been through deep diligence. A funder without an institutional warehouse is operating off equity or pure origination-and-sell, which limits scale and may signal underwriting concerns.
Are you currently in good standing with your warehouse line? An honest yes is informative. A vague answer is informative in the other direction.
Are you nearing any concentration limits that would affect deals like mine? Particularly relevant if you're in a popular vertical (restaurant, trucking) or a heavily-concentrated state (FL, NY, CA).

Frequently asked questions

What's a warehouse line of credit?: A senior secured revolving credit facility, usually provided by a Wall Street investment bank or a specialty finance lender, that an MCA funder uses to finance its originations. The funder borrows from the warehouse, originates advances, and uses the receivables as collateral. The advance rate is typically 75–85% of eligible receivables.
How does the warehouse line affect my factor rate?: Heavily. The warehouse is the funder's primary cost of capital — usually 8–11% in 2026. Plus an advance rate of ~80% means the funder needs to fund 20% with their own equity (or LP capital). The blended cost of capital is roughly 15–20%. Add fees, losses, and target return, and you arrive at the factor floor.
Which banks provide MCA warehouse lines?: Goldman Sachs, JPMorgan, Credit Suisse (now part of UBS), Deutsche Bank, Barclays, and Morgan Stanley are the largest. Specialty providers include Pacific Western Bank's Square 1 division, BMO Capital Markets, Atlantic Capital, and CIBC. Each has its own credit box and covenant style.
What happens if the funder breaches a warehouse covenant?: First, a cure period — usually 30–60 days. If unresolved, the warehouse can suspend new fundings, force accelerated paydown, or in extreme cases call the loan. Funders dread covenant breaches because they cascade — losing one warehouse line often triggers cross-defaults with other facilities.
Why isn't this discussed publicly?: Warehouse facilities are confidential. The terms (advance rate, pricing, covenants) are tightly negotiated and the funder rarely discloses them outside of investor materials. Securitization prospectuses on the SEC's EDGAR system are the cleanest public window into how warehouse terms shape funder economics.