Diversification of funding sources was a key topic discussed for companies focused on Scalability. In general, assets can either be financed ‘on balance sheet’ or ‘off balance sheet’, the key distinction between the two being who actually owns the assets. Does the originator retain them and list them as assets on their own balance sheet, or are they moved in some way off of the original balance sheet.
Two of the most commonly used off balance sheet tools are SPVs/Warehouses and Forward Flow Agreements. This comparison is not meant to suggest that one structure is superior to the other, rather that a mature originator will have multiple tools at their disposal and an ideal capital structure usually combines a balance of both on (SPV / Warehouse facilities) and off (Asset Purchases / Forward Flow Agreements) balance sheet financing facilities.
For more on SPV / Warehouses
For more on Forward Flow
What are the Balance Sheet implications, risk associated with and economic differences between Forward Flow Agreement and SPV/Warehouses:
