An SPV, or a special purpose vehicle, is a specific type of investment opportunity that companies make in which they can ensure their business plan comes to fruition. It helps to outweigh the potential risks that come with any losses that come to a company as it operates as a separate subsidiary that can earn capital. They only last for a temporary time, but they can help to secure financial needs, protect property, and provide liquidity.
1. Asset Protection
If you believe that there is a risk to your assets as a business owner, you have to consider investing in starting an SPV as it can protect the assets you have. When you are in desperate need of capital, you can use the SPV to not wreck your credit and to not lose investors. You can even use the investment profit that comes from the SPV to make up for financial difficulties that you may have without having to cut employees or get rid of certain assets. As soon as you feel that your business is back on its feet, you can stop the SPV and retain the profit that was made.
2. Test Investments
When someone invests in an SPV, they also can run a test to determine if the business truly will succeed. It will likely be a smaller investment that can still allow a profitable outcome without risking too much money. You can then assist in raising the equity of the business and the revenue that you want to make. If you make enough money from the investment that you make with the SPV, you can then make an investment in the parent company to earn even more money.
3. Undiluted Market Opportunities
There are many benefits of a special purpose vehicle, including that an SPV is also likely to have a lower number of investors in it than the parent company does. Some individuals may even be afraid to invest in the SPV due to the loss that the parent company did experience prior to the creation of the SPV. With an undiluted market, however, you have fewer investors that you have to split the profit with, meaning that you will earn a much larger return. If you decide to go back to the parent company after success as aforementioned, you will likely still be one of the first investors in an undiluted company.
4. Tax Savings
By investing in an SPV, you will save on your taxes, especially as it is only a subsidiary. It does not follow the same rules as the parent company as it will be considered to have its own assets and its own tax documentation. Even the business itself will save on taxes as the profit from the subsidiary will not have the same tax rates as the parent company. This will ultimately give everyone savings as needed from the business loss and to you as the investor as you will be making a risky investment.
5. New Partnerships
As soon as you encounter an SPV, you need to consider if it is worth investing in. You may even make a new partnership, especially if you own another business as an investor, in which you can help one another in customers. This will lead to more profit for the business that is struggling and more profit for you as the investor company. Financial gains are sure to be made on every end of the spectrum for anyone who is involved in the investment that is made in the SPV.
An SPV is an excellent tool that is available to businesses who are struggling and who need a way to make up for the loss of income. Often, these subsidiaries end up being highly profitable, making them a worthwhile investment opportunity to receive a quick return. You may even make a new partnership and make your own financial and tax savings by pursuing the investment in this smaller, temporary asset. Plus, you will make yourself feel good about helping a business that is struggling to get back on its feet through the investment that you make.
