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Specialty Finance Unwrapped

By Brian Garcia

The banking and finance industry has seen a shift in recent years with more financial institutions (bank and non-bank) looking to invest in Specialty Finance companies and portfolios. These companies and portfolios use both traditional and technology-driven (FinTech) approaches to underwrite transactions and provide financial services. The Specialty Finance verticals in which these companies/portfolios operate include:

• Factoring Portfolios
• Consumer Loans
• Auto Finance
• Equipment Leasing and Financing
• Mortgage and Fix-Flip Loans
• Litigation and Medical Lien Financing
• Re-Discount Lending Platforms

RedRidge performs both Quality of Earnings and Collateral Audits (Field Exam Services) across Specialty Finance companies and portfolios.

RedRidge advises clients on their structures and underwriting decisions by utilizing traditional diligence methods (documenting policies and procedures, testing controls, evaluating underwriting decisions/exceptions, and tracing cash from funding to collections). In addition, RedRidge utilizes analytics and metrics to evaluate the algorithms, risk ratings, and decision trees used for underwriting purposes to evaluate both traditional Specialty Finance and FinTech Specialty Finance companies and portfolios. RedRidge’s diligence processes help provide assurance that loans/contracts are properly underwritten/executed, funding has taken place, and future collections are likely to occur.

Specialty Finance is a niche industry with esoteric terms, regulations, and constantly shifting market trends. RedRidge has dozens of professionals with collective experience that continues to expand through various market cycles. This experience and the ever-evolving tools and techniques enable RedRidge to assist clients through the nuances and shifts in the Specialty Finance industry.

Additionally, in recent years, there has been a surge in the use of FinTech models and algorithms to underwrite Specialty Finance portfolios. Many financial institutions have been looking to invest in Specialty Finance portfolios that use FinTech approaches. RedRidge has helped consult and perform diligence on various traditional and FinTech Specialty Finance portfolios and transactions.

In the process of working through hundreds of deals per year, RedRidge has exposure to various schools of thought both from the financial institutions’ perspective and target/borrowers’ perspective. Furthermore, RedRidge has vast exposure to the way target companies and portfolios operate. By having this exposure and volume of deals per year, RedRidge can stay apprised of the latest trends in Specialty Finance and in turn, can advise our clients on the potential strengths and weaknesses on specific transactions.

The value of performing thorough diligence prior to making a debt or equity investment in a fluid and complex industry such as Specialty Finance is inherent. RedRidge has the tools, experience, and customizable approaches to guide its clients through that process.