Pulley vs. Carta for a Specialty Asset-Based Lender

At this stage, the lender's own company equity, held by the founders, is entirely separate from the loan portfolio itself, which sits on the balance sheet funded partly by the warehouse credit facility and partly by the founders' own capital. That separation matters: the loan book's performance drives the business, but it isn't equity in the company the way a founder's ownership stake is.

It's an easy distinction to state and a surprisingly easy one to blur in casual conversation, especially when a founder describes the loan book informally as "what we've built" in the same breath as talking about company equity. Keep the language, and the records, precise from day one.

With a small founding team and no outside equity investors yet, Pulley is the right fit: a simple cap table, straightforward if the founders eventually want to grant phantom equity to the underwriting lead, and no need yet for investor-grade reporting.

The underwriting lead who built the credit models is a genuine key-person risk, and most specialty lenders retain this role with phantom equity tied to portfolio performance, loss rates staying within target, portfolio yield, rather than real equity. This rewards the person for the credit quality they actually control without diluting founder ownership or complicating the warehouse lender's view of who controls the company.

Write the formula around metrics the underwriting lead can actually influence: approval-to-default rates on loans they personally underwrote or supervised, not portfolio-wide numbers that include loans originated before they joined or outside their oversight. A formula that blames someone for outcomes they didn't control undermines the exact trust the grant is meant to build.

Say the underwriting lead's phantom equity pool is worth 2% of the company's equity value at a future sale, split into annual tranches tied to that year's loan cohort. If that cohort's loss rate comes in at or under the target the founders set, the full tranche vests; if it runs hot, the tranche vests only in part, or not at all, depending on how the formula is written. Put the exact math in the grant agreement itself, not in a side conversation, so there's no ambiguity if the loss rate lands right on the boundary.

A warehouse facility or a credit fund that finances the lender's loan book typically includes change-of-control and change-of-ownership provisions in its credit agreement, since the lender's own creditors care deeply about who's running the underwriting. Read these provisions closely before granting any real equity. Phantom equity, since it transfers no actual ownership, generally avoids triggering them.

This scrutiny tends to surprise founders coming from a more conventional operating business, where a small real equity grant to a key employee is rarely a covenant event. In specialty finance, the warehouse lender's confidence in who controls underwriting decisions is close to the center of what they're actually financing, which is why they pay closer attention than a typical commercial lender would.

A specialty lender's cost of capital and the spreads it can charge borrowers both move with broader rate conditions, and the 10-year Treasury yield, recently near 4.44%¹, is a common reference point for both warehouse facility pricing and the discount rate assumptions behind the company's own 409A valuation. A valuation provider working on your company's options grant should understand both sides of how that rate touches the business, not just the client-facing lending side.

Set the vesting schedule around when a loss rate can actually be trusted, not around a standard four-year calendar. A loan book underwritten this quarter won't show its true default pattern for twelve to twenty-four months, depending on the asset class, so tying full vesting to loans that haven't seasoned yet lets an underwriting lead look good on paper while carrying risk nobody has priced yet.

A common structure grants phantom equity units annually, with each year's units vesting only after the loans underwritten that year have seasoned long enough for a loss rate to mean something. If the underwriting lead leaves before a given year's units vest, those units are typically forfeited outright, since a phantom equity award that survives departure with no ongoing tie to the credit book defeats its own purpose.

When designing the underwriting lead's phantom equity, check the following:

• The payout rewards credit quality, such as loss rates and portfolio yield, rather than loan volume alone.
• Full vesting waits until the loan book has seasoned enough for its default pattern to be trusted.
• Your warehouse facility's credit agreement has no change-of-control or change-of-ownership provision that real equity would trigger.
• The loan portfolio stays separate from company equity in your records, since it is a balance sheet asset.
• You revisit the platform choice once outside equity, a board, or a larger portfolio team arrives.

Once the lender has raised outside equity capital to grow its balance sheet, added a board, or is layering phantom equity across a growing underwriting and portfolio management team, Carta fits better: consolidated reporting, support for the preferred and common share structure an institutional round typically introduces, and the audit trail investors expect.