“Joe” wants to buy the equipment needed to become an Internet service provider. He has customers signed up and knows he’ll have a predictable revenue stream. But Joe has no credit history and no track record.
In the event that he can’t get a business loan or venture capital, there’s another financing option that could work for Joe: structured financing, which is a way of borrowing money against an asset or a projected asset without consideration of the creditworthiness of the borrower.
“If you had a fairly stable stream of revenues coming in once you built out the infrastructure, that’s a very likely candidate for structured financing,” says Todd Eyler, an analyst at Cambridge, Mass.-based Forrester Research Inc.
For example, a good candidate for structured financing, he says, is a company or government agency that’s building a bridge – an asset with a lasting and fixed value. If anything happened to the borrower, the bridge would still be there.