Raise long-term funding through debt capital markets

Advantages and disadvantages of raising finance through asset securitisation


Securitisation allows you to raise finance for your business by selling assets or income streams into a special purpose vehicle (SPV). Securitisation is the process of pooling the assets - typically small assets that it wouldn't be possible to sell individually - and the SPV is the legal entity created by these bundled assets.

The SPV then raises money for your business to pay for these assets by issuing secured bonds. Usually assets sold into an SPV have some form of regular income - such as royalties, regular payments from customers or other ongoing revenues.

This method of raising finance is often used by businesses in non-financial sectors to support bond issues and raise cash for expansion, acquisition or to reduce bank debt. These sectors could include:

  • logistics
  • utilities
  • leisure
  • healthcare
  • intellectual property

Securitisation is suitable for a wide range of businesses, as long as they have an asset or collection of assets that:

  • can demonstrate regular and consistent cashflow
  • can be bundled together and sold into an SPV

Advantages of securitisation

Usually, securitisation is used for raising large amounts of funding and can be advantageous to your business if you are looking for investment. For example:

  • the SPV is entirely separate from the originating business
  • generally, the interest rates payable on securitised bonds sold by an SPV are lower than those on corporate bonds
  • private companies get access to wider capital markets - both domestic and international
  • shareholders can maintain undiluted ownership of the company
  • intangible assets such as patents and copyrights can be used for security to raise cash
  • the assets in the SPV are protected, even if your business gets into financial problems - which reduces the credit risk for investors
  • an SPV usually has an excellent credit rating - so regulated investors (such as insurance companies and pension funds) will find it easier to buy bonds than from a private company

Disadvantages of securitisation

There are also some disadvantages to consider. For example:

  • it can be a complicated and expensive way of raising long-term capital - though less expensive than full share flotation
  • it may restrict the ability of your business to raise money in the future
  • you could lose direct control of some of your business assets - this may reduce your business' value in the event of flotation
  • it may cost you substantially if you want to take back your assets and close the SPV

    See more on business assets.