What is Structured Finance?
When more conventional methods of obtaining a business loan are either undesirable or not possible, there is always the option of structured finance. Structure finance essentially is the process of making a loan based on a strong performance in cash flow in the past. Rather than other assets being used as collateral for the loan, funds are advanced based on the history that indicate a consistent flow of cash into the borrower’s business that will allow for the timely and orderly repayment of the loan amount. Here are some examples of how structured finance may be the right option in a given situation. The use of structured finance can be attractive to a business that does not have much in the way of material assets, but does have a strong client base and a documented history of monthly billing coupled with consistent pay histories of the customers. Investors are often willing to lend money to corporations of this nature, even if they may be rather small, and do so at a lower rate of in
Structured finance is applicable to both large and small projects and involves elements of both corporate and limited recourse project finance. Like corporate finance, it involves full recourse to the project sponsor’s balance sheet. Like project finance, it involves special features to enhance the credit of the borrower, including (but not necessarily limited to) one or more of the following: • Special purpose accounts, including offshore payment accounts, escrow or reserve accounts, or other accounts that would be subject to Ex-Im Bank’s control; • Covenants and default provisions such as financial ratios or debt service coverage requirements that would, if violated, prevent payment of dividends to the sponsors; • Insurance requirements that might be more strict than those typically applicable under corporate insurance policies; • Letters of credits or other sources of funds that would be pledged by the sponsor to Ex-Im Bank through a bank or other third party. Structured finance pro
