FAQs
Over recent years, ABL has become an accepted financing option in syndicated, structured finance and private equity sponsored deals. This is because it is a flexible and capital-efficient form of finance that has now become part of the mainstream suite of banking products.
Is asset finance the same as asset-based lending? ›
Asset financing lets a business borrow money to purchase assets, while asset-based lending is when a company borrows money and uses what it already owns to guarantee payment. Both facilities help businesses expand and grow in operations, allowing them to increase their production capabilities.
What does structured finance team do? ›
Structured Finance Definition: In Structured Finance, banks pool together loans backed by cash flow-producing assets into securities and sell “tranches” of these securities into the capital markets; these securities use tools like credit enhancements to make each tranche riskier or less risky than the “average loan” in ...
What is a structured asset finance? ›
Asset financing is a so-called structured financing solution. It allows companies to finance the purchase of assets such as aircraft, ships, trains and, in some cases, real estate. These are medium- to long-term financing projects.
What is an example of asset-based lending? ›
Examples of asset-based lending include accounts receivable financing, equipment financing, inventory financing and commercial real estate financing.
What are the risks of asset-based financing? ›
Risks of Asset Based Loans
Loss of assets: If the borrower defaults on the loan, they may lose the assets pledged as collateral. Fluctuating collateral values: The value of collateral can shift with market conditions, potentially causing the borrower's borrowing capacity to decrease or loan terms to change.
What are the two types of asset-based loans? ›
Common types of assets based loans
- Loans against vehicles.
- Loans against valuables (such as gold)
- Loans against residential or commercial properties.
- Loans against securities such as shares, bonds, mutual funds, employee stock option plans.
- Loans against investments (such as Fixed Deposits)
- Loans against insurance policies.
What are the disadvantages of asset financing? ›
One of the biggest cons is that the borrower must put up collateral to secure the loan, which means they risk losing valuable assets if they default on payments. Another potential downside to asset-based lending is that interest rates and fees tend to be higher than traditional loans due to the added risk involved.
What are the requirements for asset-based lending? ›
With ABL, a lender will instead focus primarily on the value of your business's assets, which are used as collateral to secure a loan. First on the list is accounts receivable; typically, only current receivables (those that are less than 90 days from invoice date or no more than 60 days past due) are considered.
Why is it called structured finance? ›
The name “structured” is explained by the fact that these financial transactions are composed of collateral-backed securities; think of asset-backed securities and mortgage-backed securities.
When a company needs money to develop a project, it can use structured finance. This customized loan is broken down into levels of guarantee so that lenders in the upper level of the structure earn low interest rates and lenders at the bottom of the structure earn higher interest rates.
Is structured finance the same as securitization? ›
Securitization is a subset of structured finance that allows creditors to monetize certain assets by transferring them to a bankruptcy remote special-purpose vehicle, or SPV, which in turn either borrows from traditional lenders or issues securities backed by those assets.
How does asset finance work? ›
Asset finance allows you to acquire or lease an asset without the need for a big upfront payment. On the other hand, asset refinance lets you unlock the cash value of an asset that you already own. Essentially, you can use the asset as collateral and secure a business loan from a lender.
What is an example of a structured finance product? ›
Examples
- Syndicated loans.
- Collateralized bond obligations (CBOs)
- Credit default swaps (CDSs)
- Hybrid securities.
- Collateralized mortgage obligations.
- Collateralized debt obligations (CDOs)
What is considered structured finance? ›
The term “structured finance” is often used to explain the bundling of receivables, although it is more generally applicable to the offering of a structured system to help borrowers – and lenders – accomplish their end goal.
What is the asset financing structure? ›
However, the most common legal structure used in asset finance is the Lease or Hire Agreement – the Funder buys the asset from the Supplier and lets it on hire in return for periodical payments normally equalised across a minimum period of hire.
What is the classification of financial asset-based on? ›
This classification system is based primarily on: (1) the liquidity of the asset, which subsumes other more specific characteristics such as negotiability, transferability, marketability, or convertibility, as well as divisibility; and (2) the legal characteristics that describe the underlying creditor/debtor ...
What is the difference between a structured and unstructured loan? ›
The key difference is in who has the control. With a structured loan, the lending institution is in control but with a non-structured loan, you're in control . This difference is important if, for example, you work on commission or on contract and don't have a steady cash flow.