Before the time of mortgage-backed securitized loans, balance sheet lenders fulfilled all borrowing needs. They keep all their debts on their financial statements instead of packaging them and selling them off as securities.
Also known as portfolio lenders, balance sheet lenders bear the burden of the debt and don't sell it off for risk reduction. When borrowers fail to pay their debts, balance sheet lenders take the borrowers' assets to cover the unpaid portions.
Compared to Wall Street lenders, balance sheet lenders are often smaller financial institutions, such as life insurance companies and local savings and loan banks. They finance mainly small to medium-sized properties that are worth up to $50 million for commercial buildings and up to $100 million for residential buildings.
Balance sheet lenders usually provide approximately 65 percent of the funds for a purchase, which is lower than what Wall Street lenders provide. This is because Wall Street lenders are willing to accept forecasts of increased profits, while balance sheet lenders are typically more conventional. Balance sheet lenders also tend to have less capital compared to Wall Street lenders.