By | Maggie Bloom | Freelance Writer
If you’re planning to acquire a company to diversify your enterprise or simply aiming to raise enough capital for a new project or venture, SPV is an effective way to do these. However, you need to understand the SPV applications and concepts (if you’re not familiar yet) before applying it for your specific business plan.
What is an SPV?
What is an SPV? A Special Purpose Vehicle (SPV), also known as Special Purpose Entities (SPE), refers to subsidiary companies developed for specific financing purposes or business deals. SPVs are typically created to protect assets and separate liabilities of a subsidiary or parent company. They’re mainly used by players in the real estate and finance industries, but can also be a tremendously useful tool for any company.
Large corporations such as yours can need to use SPV to mitigate financial risks you may face when funding or purchasing new assets or advancing business transactions. Your company can opt to use SPV to achieve essential business goals and targets. For instance, your agency can apply SPE in various ways like risk reduction and isolation, securitization of crucial receivables like loans, protection of intellectual property, quick and efficient transfer of no-transferable assets, financial engineering, liquidity and funding, and protection of your investment.
Advantages of an SVP for your business
There’re innumerable advantages of SPV for your business. For effective management, however, you may need to hire a reliable organization with a team of experts in special purpose vehicle applications and concepts. The following are some ways in which your business will benefit from an SPV:
You can quickly grow your buy-to-let portfolio through an SPV limited company since there’s no income tax due on retained returns, giving you extra capital to invest. You can benefit from buy-to-let lenders who offer mortgages to company vehicles. They typically prefer SPVs to trade limited corporates as they’re easier to understand and faster to underwrite.
If you purchase an asset through SPV, you’ll keep it as a separate entity. This will prevent you from losing the benefit of closing the parent company down through member voluntary liquidation (MVL). By investing in an SPV limited company, you can easily draw your investment back out of the SPV in kind of a director’s loan. This will offer a financial benefit for your business.
You can mitigate your potential income tax liability since you can control how much income is withdrawn from your business, or leave it in the SPV if it isn’t required. SPV will protect your venture and property during financial difficulties and lessen the credit risk for the investors and stakeholders.
With an SPV, your securitized loans will have lower interest rates than the rates on the parent company bonds, leading to financial savings. SPVs facilitates the access of private agencies and inauguration to the capital markets.
You can use one SPV company for multiple properties, allowing you to create a portfolio within the same entity, mitigating admin, and ongoing costs. You’ll have direct ownership of a particular asset (or multiple assets).
The Assure’s SVP
An Assure SPV allows you to pool finances into an SPV, allowing the investment to acquire and manage multiple assets (or a specific asset). The Assure SPV, in several ways, mirrors the SPV’s structure used by venture funds. They often fill an allocation by finding auxiliary investors pooling them in a different unit from the venture fund’s core fund.
The capital is customarily requested upfront to eliminate the need for capital calls through the future of the fund. Other key features of Assure SPV that can benefit your business include allowing you to choose various investments, eliminating audit and financial statement obligations, allowing you to pool capital to meet the minimum investment requirements, delivering the SPV sponsor with carried dividends or other performance fees, allowing for special waterfall provisions and economics specific to your investment.
Adopting a special purpose vehicle (SPV) in your business can make a significant impact. By understanding the SPV’s concept and application, you can use it to reduce financial risk when funding your new ventures or projects. Through this tool, you can quarantine your business from unwanted outcomes of your deals. Ensure you follow the laws regarding the use of SPVs to avoid any regulatory or legal issues.