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Top 5 Benefits of an SPV Investment

2 min read

Sep 27, 2022 9:51:27 AM | Wendell Williams

There are many reasons that a company would want to establish a special purpose vehicle, more commonly referred to as an SPV or SPV investment. Likewise, there are many benefits to doing so. 

If you or your financial management partners are considering starting or creating an SPV investment, it is worth exploring some of the top benefits affiliated with SPV investing. First, it is important to break down precisely what an SPV is used for, as well as some of the special purpose vehicle concepts and applications that are common.

What are Special Purpose Vehicles Used for?

SImply put, a special purpose entity is essentially a subsidiary company formed for a specific business purpose or activity. A common purpose is to structure finance applications, for example, such as asset securitization, joint ventures, or property deals. Another popular concept is to isolate assets, risks, or operations from the parent company. 

In this way, special purpose vehicles provide protection for a parent company’s assets and liabilities. This makes them attractive for those looking to undertake a project that includes a level of risk that they want to protect the parent company from. Whether you are considering acquiring new assets to diversify your business, or raising capital for an upcoming project, SPV investing can introduce a wide range of benefits. 

Top 5 Benefits of an SPV Investment

FInance team going over numbers.

Depending on what your intention is for the SPV, some benefits may speak to you more than others. And while this list is not complete, as there are a significant number of benefits you are likely to identify with, these top 5 benefits should give you a commonplace understanding of how an SPV investment could benefit your company or capital project.

1. Risk Sharing

As previously mentioned, a special purpose vehicle can isolate the parent company from project-affiliated risk. Understandably, certain projects have more financial risk than others, but by creating an SPV, your company can take the proper steps to legally isolate those risks. 

Mitigating risk in this way can give the special purpose vehicle a bit more operational freedom, knowing that the parent company won’t be impacted by any potential burden of the SPVs affiliated risk.

2. Capital Management

The ability to pool funds is one of the most common reasons for starting a special purpose vehicle. This can be especially beneficial for early stage startup companies, as an SPV allows for up to 250 accredited investors to pool their investment capital. 

Additionally, fundraising through a special purpose vehicle in this way can help keep a startup’s cap table clean, which is important to getting off to a good start, but also for ongoing financial bookkeeping.

3. Flexibility

A major reason that investors prefer an SPV over other investment strategies is because of the flexibility it provides. Special purpose vehicles are not a one-size-fits-all investment model, and can be specific and modified to your particular needs. 

And while startups appreciate the capital model they provide, SPV investing is not for startups only, and can be structured to accommodate a range of different investment strategies from real estate to private funds to other assets entirely.

4. Securitization

There is no question that investors want to be assured of their repayment, and this is possible through SPV investing, since the pooled assets of the investors are isolated from the parent company, and under their own control. 

Essentially, the process of securitization is turning illiquid assets into liquid assets, which frees up credit and financial options.

5. Taxes

An appealing benefit to many investors is the role that taxes play within SPV investing. For instance, when it comes to property investing, sometimes the taxes on a specific property sale might be more than the gain made from the sale. But, by setting up a special purpose vehicle that owns the sale property, the parent company can then sell the SPV instead of the properties, which results in the parent company paying taxes on the gains from the SPV, rather than having to pay the sales tax of the property.

Start Your SPV Today!

These are only five of the common benefits to starting an SPV investment, but there are many more benefits that are worth considering. Depending on your situation, it is worth looking into the world of special purpose vehicles and learning how they can benefit you.To learn more about how Assure can help you ensure the success of your next venture, click here.