Seeking a non-standard loan can be a daunting task, especially for affluent private clients who find themselves at odds with the big banks' pursuit of higher risk-weighted returns. As these financial giants increasingly standardize their lending practices, aiming for scale benefits, reduced risk, and lower regulatory capital costs, it is the clients with unique and complex financing needs, including non-liquid collateral, who often feel left out in the cold.
What exactly is structured finance?
Structured finance is the answer for wealthy individuals facing intricate financing requirements that cannot be met through conventional means. These structured loans offer clients the opportunity to raise liquidity and finance new investments without needing to sell their existing assets. Unfortunately, traditional lenders rarely extend such specialized financing options. Consequently, those able to provide these tailored solutions offer exceptional value to their clients.
Understanding the Essence of Structured Finance
To illustrate the concept, let's dive into an example of a structured loan. Imagine a wealthy individual seeking capital to inject into their privately owned company, propelling its growth ahead of an upcoming IPO. Exciting, right? However, since the assets lie within the private company, the collateral is not as easily liquidated as it would be if the company was public. Consequently, conventional banks are unlikely to grant this individual a loan. In such cases, a structured finance solution could be the key to unlocking accelerated growth and increased value for the company.
Most banks primarily offer loans to private individuals based on easily seized and liquidated assets, such as listed shares, public company bonds, or traditional real estate mortgages. These assets are relatively straightforward for traditional banks to seize and sell within a reasonable timeframe if a client should fail to meet their contractual obligations, such as paying interest or amortization.
Structured finance solutions, on the other hand, cater to borrowers who wish to leverage the value they have in assets that do not meet the criteria of traditional loans. These borrowers are often successful entrepreneurs seeking to make use of their unique assets. In structured finance, collateral typically consists of a pool of diverse and more illiquid assets, such as ownership in privately held companies, private projects, or other non-standard collateral like art collections or vintage car portfolios. These asset classes can be more difficult to value, seize, and sell if necessary. As a result, traditional banks are hesitant to accept them as collateral due to the added expenses and regulatory requirements imposed by financial authorities overseeing the banks' activities.
In a structured finance loan, the costs and repayment of the loan can be managed in various ways. For instance, through cash flow generated from underlying assets or through a so-called bullet payment. A bullet payment involves a one-time payment made by the borrower at the end of the loan term. This payment can be secured, for example, by the client's decision to sell their private company to a new owner, utilizing the proceeds to repay the entire loan, including expenses.
Embracing the Benefits of Structured Finance
Since structured finance is not commonly offered by traditional lenders, many affluent clients find themselves unable to use all their assets as loan collateral as their bank does not offer such a service. This limits their financial flexibility. However, a well-tailored structured finance solution empowers individuals to maximize their strategic opportunities. Imagine the company owner from the previous example, leveraging a structured finance package to inject additional capital into his business, accelerating growth by investing in a new plant. This, in turn, boosts the company's revenue, profits, and ultimately, the overall value of the business. At the end of the day, this is the traditional role banks should play in a well-functioning economy.
Kaleido Private Bank – Setting Ourselves Apart
At Kaleido Private Bank, we have extensive experience in providing complex and tailor-made loans to individuals and entrepreneurs, utilizing a wide range of collateral pools. We have successfully granted loans to numerous clients where the only collateral was shares in privately owned companies.
When evaluating a potential loan for a client, we conduct a comprehensive risk assessment that encompasses the client's overall wealth situation. This includes valuing their ownership in private companies or projects, assessing other relevant collateral pools, and evaluating the client's private creditworthiness. Additionally, we consider the personal history and relationship with the client, recognizing the value of long-standing relationship and trust. As a boutique bank, we prioritize a fast and transparent credit decision process for clients seeking structured loans. Our clients can expect initial feedback within 24 hours, and we strive to provide a firm financing commitment in under two weeks.
At Kaleido, we pride ourselves on making complicated financing simple. Our team of experts is dedicated to finding creative and efficient solutions tailored to the unique needs of our clients. So, whether you're an entrepreneur with non-standard assets or a visionary seeking to unlock new possibilities, Kaleido Private Bank is here to support your financial journey.
Disclaimer: This piece of information is for marketing and entertainment purposes only and should not be taken as an investment recommendation or financial advice. Remember that all investments involve risk. Please read our full Marketing Disclaimer here.
Markus Abbassi: December 10, 2024
Kaleido