As far as the structure is concerned, a cash flow agreement usually involves a direct purchase by the lender of credits advanced by an initiator in accordance with the eligibility criteria. The economic and financial interests on the loans are transferred to the lender on the first day, the legal interest being only after the triggering events related to the performance and solvency of the initiator or service provider. This gradual transfer of legal title and benefit title to mortgage assets is consistent with securitization and investment fund transactions that sell securitization receivables (SPV) without first notifying the underlying debtors. Indeed, from a client`s point of view, there is little difference between the cash flow-financed loan compared to an inventory structure or a securitization refinancing. For the duration of the forward flow agreement, investors receive weekly interest payments based on the performance of the underlying loans. The principle is repaid when the anticipation flow matures. From a lender`s perspective, the accounting nature of forward flow may mean that it is more appropriate for non-banks to carry out part of their balance sheet without the same regulatory capital effects as for bankers. The bespoke nature of forward flow installations can also be potentially difficult. Nevertheless, cash flow agreements for both banks and non-banks can provide the opportunity to benefit from an existing credit platform and to rapidly invest capital in different markets and asset classes. It is perhaps not surprising, then, that at a time when platforms are an important and growing distribution channel, we are witnessing an increasing number of cash flow transactions; According to the latest FCA market research on investment platforms, the market has doubled since 2013, from $250 billion to $500 billion in assets under management. On the other hand, inventory financing structures are accessible to bank lenders and non-bank banks. To achieve a sustainable solution, it is important to focus in particular on pricing. A fair price agreement for both partners is the basis for a long-term partnership.
The key word in this context is “transparency.” The company and its potential business partner should first have a common vision of the factors of influence that determine the value of the receivables to be permanently divested. These include .B information on: For example, imagine that a $20 million loan was granted for a 20% interest. Lenders often include maintenance fees or minimum interest that must be paid. So if the minimum utilization rate is 50%, the online lender is obliged to pay $2 million a year to the investor, no matter what. If non-borrower borrowers have been found and the online lender therefore does not generate income with the capital, this could become unaffordable. Each forward flow contains many small loans at basic interest rates. These loans generally have a shorter term and are therefore replaced during the period covered by the cash flow agreement. All loans in advance have the same interest rate, amortization and type of credit, as well as similar maturities and amounts (in a zone agreed in advance). Investors can view the details at any time in the credit view and track all credits at the individual level.
Often, the lender`s ability to use the initiator either through the requirement of a buyback or by a right to breach the guarantee is limited in the case of a cash flow transaction. For example, the author`s liability may be subject to time and monetary constraints and cannot cover legislative changes and certain other risks. After the sale of credits to the funder, the initiator will want to minimize future potential receivables or liabilities, particularly given its limited economic performance.