Asset securitization is the process of structuring, combining and repackaging of cash-flow-producing assets. If any asset is generating cash payments for your company, a business can bundle these assets together and sell them on the asset-backed securities market. The value of this loan packaging depends on the viability of the underlying security. For instance, say your company has receivables from credit card debt and then issues asset-backed security. The market value of this debt relies on credit history of the various companies that pay these receivables.
Asset securitization is a relatively new financial vehicle, which began in the 1970s and now is a trillion dollar industry. However, with the explosive growth of the industry come some complications. This process is not for the faint of heart, as it can pose significant risk if a business does not understand the process. Before your business decides to begin asset securitization and loan packaging, consider the following:
1. Know the history and process of asset securitization and loan packaging.
2. Understand the issues of loan securitization as it relates to your business.
3. Use the asset securitization process and the securitization of loans to increase your company's profitability while decreasing risk.
Action Steps
The best contacts and resources to help you get it done
Analyze the steps necessary for asset securitization
There are times when your business may need the immediate returns from overall debt obligation and is willing to sell the cash flows from this debt to receive the bulk of amount owed to your business. However, before making the decision to securitize your debt, it is important to understand the process by which this happens.
I recommend: Attend an asset securitization course to better comprehend the process. The
New York Institute of Finance offers an online course that covers most every securitization topic. Join the
American Securitization Forum, which regularly host informational seminars that help explain the practice of asset and loan securitization.
Make note of the differences between loan and asset backed securitizations
Loan securitization is primarily the way banks package their loans for the secondary market. Meanwhile, asset securitization is a primary way for businesses to pool a positive income stream from the debt it owns and sell it to other entities as a source of immediate funding.
I recommend: Analyze asset securitization information from
Global Research that details the potential pitfalls of the procedure. Evaluate the loan securitization information available from
Vinod Kothari's Securitization Website, which details securitizing loans from the banking side of the equation.
Seek the advice from a bank securitization professional within the industry
Even if your company has in-house financial professionals who understand securitization of loans or other assets, it is a prudent practice to obtain the advice of outside counsel on the process.
I recommend: Horan, Martello, Morrone, P.C. is a company that can assist in the loan securitization process. Talk to the business loan packaging professionals at
Commercial Loan Packaging to determine the financial efficacy of the procedure. Consult with
Deutsche Bank, one of the largest asset securitization firms in the world.
Tips & Tactics
Helpful advice for making the most of this Guide
- No matter how safe any investment vehicle appears, there is always inherent risk involved in any transaction. It is imperative that you determine the effectiveness and the risks before beginning asset or loan securitization as a means of attaining capital.
The official source of Asset Securitization and Loan Packaging is
the Asset Securitization and Loan Packaging page at Business.com
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