Following is a hypothetical that is actually a commonplace reality for some businesses in New York and nationally. It often poses both a challenge and corresponding opportunity for select entities.
Say that your business has a strong need for immediate cash infusion. Maybe payment obligations to some creditors are imminently due. Perhaps an exciting expansion opportunity has emerged, but a considerable amount of money not immediately on hand is required to exploit it. Many other scenarios might similarly spotlight the need to get cash quickly.
The obvious question: Where can it be obtained? A sale of equipment, part of the company or something else spells a potential strategy. So too might be the securing of a business loan backed by company assets. Other possibilities might also come to mind.
In some instances, a company can benefit by securitizing assets and selling off the receivables to investors.
The process is relatively straightforward but, candidly, replete with complexity and technical requirements. Those are best addressed by a commercial legal team with a wealth of experience promoting the interests of diverse business clients in structured finance transactions.
Some companies are particularly well placed to take advantage of asset securitization and the subsequent sale of receivables to third parties. Receivables sometimes take a long time to be converted to cash, and debtors sometimes default on payments. Company principals can sometimes profit from converting receivables to securities and selling them to investors. The latter can negotiate a discounted price, which the selling business gets upfront.
An in-depth overview of the process stresses that, while a company might lose some value when securitizing receivables, selling them in such a manner “is typically cheaper than taking out a loan backed by the cash flow from the same receivables.”
Company managers seeking to know more about the process and whether it might be a viable strategy can contact commercial attorneys with a demonstrated record of advocacy in transactions relating to the securitization of receivables.