Structured Finance provides a viable option for funding when conventional methods of obtaining a business loan are either too expensive or not available. In essence, structured finance bases the viability of a loan on the performance of a business’ historical cash flow. As opposed to tying up assets as collateral, funding in a structured finance scenario is advanced based on a history of consistent cash flow produced by the borrower’s business operations.
The following examples show how structured finance may be the right option in a given situation:
- Low values in terms of material assets – A growing client base and a history of monthly cash flow can attract investors, even at rates less than traditional bank loans. Structured finance loans can also get put together and approved faster than standard bank loans.
- Companies carrying large sums of debt – Banks generally tend to avoid highly indebted companies but structured finance investors, seeing strong cash flow can be willing lenders. Businesses often use structured finance loans to replace debt carrying higher interest rates.
- Businesses with little or no credit history – New businesses are typically considered as high risk borrowers. This is especially true if the company’s principals do not have the personal assets to guarantee a loan.
- Companies with assets which can be collateralized – Structured finance in these scenarios is commonly executed as a collateralized debt obligation (CDO). This type of loan can be complex in structure but gives lenders security in the form of assets which back the loan.
These deals are often complex to build and require the experience of finance teams like the one led by Dmitrij Harder at Solvo Group. That being said, the use of structured finance products has given many businesses a chance for new life that would not have been possible using other financing methods.
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