The idea of borrowing a third-party balance sheet is the following:
- The third-party issues securities, generally bonds, with a reasonable coupon rate, on a loan with maturity minimum of 2 and maximum of 3 years.
- The third-party uses the network of banking contacts to distribute the bonds to the financial market.
- The third-party invests the money into the entity in need of capital at a much higher interest rate.
- The entity in need of capital executes its contemplated business and either succeeds or fails.
- In case of success, the entity in need of capital pays back the loan including the third-party’s premium covering its investment risk.
- In case of failure, the entity in need of capital becomes the third-party’s property.
