If you have a financial need that can’t be solved with conventional financing, then you’ll need structured financing.
Structured finance is a method of debt financing that is aimed at providing solutions for businesses, organisations and individuals. It is used to fund complex transactions, such as asset-based lending, credit card receivables and syndicated loans.
Do you know this type of financing? If not, then this blog is for you. We’ll give you further information about what structured finance is, how it works, its benefits and its main features. Read on.
What Is Structured Finance?
The main goal of structured finance in Australia is to provide a simpler way for borrowers to acquire funding from lenders. Structured finance is a way to raise funds for something that is difficult to fund. It is also used to get funding for something that is not a standard loan.
For example, if you want to build a shopping mall but don’t have enough cash on hand and can’t secure any traditional investors, structured finance may be what you’re looking for. Or maybe you have a great idea for an app but aren’t sure how long it will take before it’s ready for release or whether it’ll be profitable enough in the first place. In these cases, structured financing might be ideal because it allows businesses access to capital without having any collateral or guarantees from them whatsoever (unlike traditional loans).
Structured finance has been around since the beginning of time—it’s just another way of thinking about investments and raising funds with real estate being one of its earliest uses!
How Does Structured Finance Work?
Structured finance involves creating special purpose entities that are used to pool assets, like loans or mortgages. The assets are then sold to investors as securities (bonds), which pay out interest and principal payments over time. This structure has been developed over the years in order to meet financing needs that are not met by traditional lenders.
The process of structuring these investments can be tailored depending on what kind of asset or project they’re being used for. In some cases, it’s done by taking several different types of debt instruments and consolidating them into one security offering—this is called bond issuance. Other times, it might involve splitting up an existing loan into multiple pieces so each investor gets their own piece of the pie—this is called securitisation (also known as collateralised lending).
The Main Features of Structured Finance
Structured finance is a broad term used to describe any type of financial instrument that is designed to achieve one or more of the following goals:
- Managing risk through liquidity and interest rates. This approach involves creating an investment vehicle with terms and structure that are tailored to meet your needs. For instance, if you need immediate cash flow, but can’t afford the high interest rates on a traditional loan, structured finance may be an option for you. By structuring the financing so that funds are paid back at lower rates in instalments over time, you can get access to funds for your business without sacrificing too much of your capital upfront.
- Reduction of focus on credit. Anytime someone borrows money from another person or entity (for example as part of a loan), they take on some level of financial risk by exposing themselves indirectly through their actions/behaviour to changes in value associated with certain types(s)/amounts(s) thereof. Sometimes, this is referred to as ‘credit risk’. This can happen because whilst they still own something valuable (their asset), they no longer control all aspects related thereto via things like terms/conditions attached during the exchange process itself (when buying).
What Are the Benefits of Structured Finance?
Structured finance law in Australia can help you to secure funding, reduce your interest costs and tax liabilities, or achieve a specific financial goal.
- Securing funding: Structured finance is often used as a means of accessing capital that would otherwise be unavailable. With this type of finance, investors can access capital without having to put up all of the money themselves by using someone else’s money as collateral or security. For example, if an investor is looking to invest in property but only has $100K available through their own savings and deposits, they could use structured finance. In this way, they can increase their investment capacity without having to take out additional debt or add any other costs associated with borrowing money.
- Reducing interest costs: Interest payments on loans are tax deductible against income earned from your business or personal activities. As such, it makes sense for businesses with high levels of debt (which translates into higher levels of interest payments) to pay off some of this debt using structured finance rather than paying all of their cash outflow directly from accounts receivable each month. This ensures that all the money paid out by customers goes towards covering expenses and not for paying lenders’ fees before reaching wages/salaries etc. As a result, profitability increases, and the risks associated with late payment cycles get reduced.
Takeaways
Structured finance is a powerful tool for companies looking to secure funding in Australia. It’s important to know that there are many different types of structures, and each one has its own unique set of benefits and drawbacks. Before deciding which type best suits your needs, it’s vital that you consult an expert who can help guide through this complex process.
