Structured finance is a sector of finance that manages leverage and risk, specifically financial law. It is a highly involved financial instrument offered to large financial institutions or companies with complex financing needs. Structured finance deals with financial lending instruments that work to mitigate serious risks related to complex assets. It involves bundling of receivables and offering a structured system to help borrowers and lenders accomplish their end goal. Structured finance utilizes securitization to pool assets, creating novel financial instruments to enable better use of available capital or serve as a cheaper source of funding, especially for lower-rated originators.

Structured finance is typically indicated for borrowers, mostly extensive corporations, who have highly specified needs that a simple loan or another conventional financial instrument will not satisfy. It is important for large borrowers needing a capital injection or alternative source of financing when other, more traditional borrowing options won’t work. Structured finance mechanisms have also been used to help financial institutions remove specific risks and develop financial markets for complex emerging markets.

Structured finance products include collateralized debt obligations (CDOs), synthetic financial instruments, collateralized bond obligations (CBOs), syndicated loans, and several other combinations of products. Structured finance is uniquely positioned to fulfill the specific capital needs not covered by traditional lending. It can help companies access capital by making it easier for debt investors to accept the risk profile of the investment. Structured finance can repackage and restructure the cash flows generated by underlying assets to align them with different investment strategies and preferences, allowing for the optimization of cash flows for the various needs of investors or issuers.

In summary, structured finance is a complex financial instrument that helps large financial institutions or companies with complex financing needs to mitigate serious risks related to complex assets. It involves bundling of receivables and offering a structured system to help borrowers and lenders accomplish their end goal. Structured finance utilizes securitization to pool assets, creating novel financial instruments to enable better use of available capital or serve as a cheaper source of funding.