Alternative finance: what’s in a security?

Alternative finance: what’s in a security?

Done the right way, anything can be good security.

What prevents it from happening is often imagination and funding covenants. 10 years ago I used to help specialist lenders develop new products and we felt that what we were doing was a ground breaking way of underwriting the borrower or the borrower’s circumstances to facilitate the transaction. Now, the borrower (certainly in an unregulated environment) is often part of the solution: the conduit for delivering the opportunity and the asset.

What we do now is look through the borrower and consider the asset. This isn’t so new in bridging: if the deal stacks up then the deal stacks up. But what I have seen and worked on in recent months is creating the ultimate security package. This is extreme asset finance and pawnbroking. Asset funders already secure against everything from airplanes to paintings and from (gun)boats to numberplates: the appetite is already there: just look at Borro.

But why stop there? In recent weeks I have been approached to create security concepts for some fascinating assets, and in areas where there could genuinely develop new and exciting markets. The combination of an innovative financial adviser and client, a lender with an eye (and wallet) for managed commercial risk in an untested environment and a lawyer with access to security structures means that (literally) an asset that has lain gathering dust can carry value. Developing funding wrappers, cross collaterisation and (in some cases) clear regulatory procedures are all capable of being created with the right desire.

Whilst it is true to say that property will always remain the number one security (and they will only ever build more), it is also true to say that alternative assets can carry as much “worth” and can be easier to underwrite and to secure. The challenge is to the lenders: will you innovate and cherry pick or is your innovation based on rates alone?

1 Comment

  1. Julian Wells

    I wonder to what extent major lenders will really embrace some of these things and whether this is where the opportunity lies for the entrepreneurs of the lending industry who have previously got involved in things such as specialist mortgages and loans, packaging, and more recently bridging. Some people prefer to use more derogatory terms than 'entrepreneurs' for these people but the bravery and conviction to push the boundaries is what ultimately leads to the evolution of new sectors of the market.

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