Real Estate Capital Simplified
Note-on-Note Financing for Private Lenders
Note-on-note financing is leverage for lenders
A bank or fund lends against your mortgage note, typically advancing 60–80% of the loan balance, secured by assignment of the note itself. It's how private lenders turn a 10% coupon book into a mid-teens return on equity. I'm Carl Riggins. Through RECAPITAL.ai, I arrange note-on-note lines and single-note facilities for private lenders and debt funds — Colorado-based and national — through the Northmarq platform's 500+ capital relationships. Every lender is somebody else's borrower.
The banks providing this leverage are solving their own problem: commercial real estate exposure they want without origination infrastructure, earning a safe spread above their cost of funds while you keep the borrower relationship and the top of the yield. Your book is their product. Price it like one — which means making the banks that buy this exposure compete for yours.
How does note-on-note financing work?
You originate a bridge or term loan at your rate; a note lender advances a percentage of it at their lower rate, collateralized by assignment of the note and deed of trust.
You keep servicing, the borrower relationship, and the spread. The arithmetic is the whole pitch: a 65% advance at a bank's cost of funds against your double-digit coupon concentrates your equity return on the slice you still hold.
Line of credit or single-note facility?
Two structures cover the market.
- Revolving lines suit fund-structured lenders originating a flow of loans under one entity — the facility underwrites your platform once, then advances against eligible notes as you originate, generally for individual loans in the sub-$20M range.
- Single-note facilities serve the opposite case: one large loan, typically $20M and up, underwritten individually — the note lender diligences the underlying asset, sponsor, and structure, then levers that specific position.
What do note lenders underwrite?
Three layers that matter most
- The underlying loans (basis, markets, borrower quality — your underwriting is their collateral)
- Your operation (track record through a cycle, servicing, workout capability)
- The structure (advance rate, margin-call mechanics, what happens when a note defaults).
The margin-call and default-buyout terms deserve more negotiation than the rate — they're the terms that decide whether leverage is a tool or a trap in a soft quarter.