June 4th, 2020. Lewis Peach
What is Structured Finance and How Does It Differ From Other Finance Products?
It’s easy to get lost in the world of finance with all the different options available. Not only do they all sound a bit similar, but the differences can also sound subtle to most. Below, we answer “what is structured finance?”, as well as spell out its benefits, uses and how it differs from similar financial offerings.
What is Structured Finance?
Structured finance is there for complicated financial problems. It is usually for larger companies and professionals who require multifaceted, layered financial solutions.
This is broken up into three major categories:
- Development Finance – Suited for large and complex development projects.
- Bridging Finance – Stop-gap finance to get a project over the line in a matter of days.
- Mezzanine Finance – A hybrid of debt and equity financing, built for funding top-ups or maximum returns on minimum investment.
And comes in two forms:
- Residential Investment– Structured finance for residential projects.
- Commercial Investment – Structured finance for commercial projects.
These solve problems that regular financing cannot. It requires the deft touch of real experts to structure assets and securities to manage risk, create collateralised debt obligations (CODs), reshape liquidity structures, etc.
Structured finance focuses less on the accumulation of debt and, as the name suggests, zones in on lending through structures and reorganising assets.
It’s the type of finance that offers multi-layered solutions for a time and a market where complexity is needed.
What Are The Benefits of Structured Finance?
There are a number of benefits structured finance has:
- Ability to change cash flows and liquidity.
- Prompt payment.
- Significant collateral analysis and research is done.
- Solves problems that standard, mainstream loans cannot.
- A wide net of investors to draw from.
- Ability to upscale financial solutions.
- Can help to remove specific, undesirable assets.
For most, however, the biggest benefit of structured finance is how it delivers complex solutions in a simple, easy-to-grasp package.
How Does Structured Finance Differ From Other Financial Offerings?
The major difference between structured finance and other financial offerings is its ability to form bespoke deals on large, high value projects.
While other financial strategies may be better for smaller, simpler problems, structured finance is, by definition, an approach that only really works for big projects.
The major reason for this difference is structured finance’s use of a process called securitisation. This raises cash and liquidity by restructuring and combining assets which, when sold, gains interest from investors.
As processes like this suggest, it is a complicated, complex financial instrument, which is why structured finance is there for times when linear finance pathways won’t work.
See How We Can Deliver Competitive, Prompt Structured Finance Today
At Pure Structured Finance, we offer a speedy service, a personal approach and levy our years of experience to find you a competitive deal.
If you feel as though you or your business could benefit from our services, then contact us today.
Article By Lewis Peach
June 4th, 2020
Lewis is a Consultant at Pure Structured Finance.
He has spent several years working as the Relationship Director for our sister company, Pure Property Finance, where he worked on numerous deals that required mixed capital stacks. large equity tickets, and good relationship and negotiation skills.
Lewis’ experience is in deals ranging from £1m to £200m, working with developers, serial entrepreneurs, and highly-experienced international real estate deal makers.
See more articles by Lewis