What Is Credit Enhancement in Securitization — And How It Gets You Funded

However, if you’re in business, finance, or trying to secure funding for your company, you need to know this.

Because credit enhancement is how you take a risky-looking deal and make it bankable.

What’s Credit Enhancement?

It’s simple:

It’s how you make a security look safer to investors, so they’ll fund it.

When a company packages its receivables, leases, or other cash-generating assets into a security (this is what we call securitization), investors won’t touch it unless they believe they’ll get paid.

Credit enhancement helps you give them that confidence.

The Two Main Types of Credit Enhancement

1. Internal Credit Enhancement

You structure the deal in a way that protects the top-level investors:

• Subordination: Junior investors take the hit first
• Overcollateralization: You add more assets than needed
• Excess spread: Extra income adds a cushion
• Reserve account: Think “rainy day fund” for the deal

2. External Credit Enhancement

You bring in a heavyweight to back the deal:

• Insurance wrapper from a rated provider
• A letter of credit or SBLC from a real bank
• Third-party guarantee to boost your rating

Why Should You Care?

Because if you’re trying to raise money—and your deal doesn’t feel safe to the people with the checkbooks—you won’t get funded.

I’ve seen solid companies get terrible terms simply because they didn’t understand how to structure their paper.

On the flip side?

I’ve seen average deals get oversubscribed because they nailed their enhancement strategy.

What You Shouldn’t Do

• Don’t think credit enhancement is a quick fix
• Please don’t wait until the last minute to think about it
• Don’t fake it. Banks and investors see right through low-effort structures.

Here’s What to Do Instead

• Build it into your deal from the beginning.
• Understand your asset quality.
• Get help designing a structure that makes sense for institutional money.

That’s what we do every day at AltFunds Global.

Book Your Call Today

If you’re working on a securitization or trying to figure out how to make your capital raise happen…

Please book a consultation call with our team at http://www.altfundsglobal.com

We’ll walk you through how to structure a fundable deal—and how to use credit enhancement the right way.

You don’t need better assets.

You need a better structure.

Let’s build it together.