6 Ways To Establish If You Are Suited For A Career In Mathematical Finance

Finding the best career that suits you is one of the most challenging things that most people face. While there are people who have been able to establish the careers that they want to be a part of very early in life, there are still those who take a very long time to do this. Furthermore, others are still unable to do this, so they just settle for whatever comes their way. The bulk of the latter end up being frustrated and underperform in their jobs.

Mathematical finance is a career that many people do not know about. This is not one of the things that would come out of the mouth of a child if they were asked what they would like to be when they grow up. In fact, many adults do not know that this is an available career path, despite the fact that it can be a very fulfilling and rewarding career. Some of the traits of people who can be successful in this career path are:

1. Good understanding of mathematical concepts

This career has its basis in mathematics, because it uses mathematics to deal with and establish issues in finance. It is therefore, important to be able to grasp the concepts that are used in mathematics easily.

2. Analytical mind

It is essential to have the ability to analyze things and situations, if you want to be good at mathematical finance. This is because it is a field that is largely based on analysis, since here you use mathematical concepts to analyze some of the trends that are observed in the finance sector. Analytical thinking is also very essential, without which you cannot be suited for this career.

3. Application

Some people are great at mathematics but they find it difficult to apply some of the concepts in real life situations. Mathematical finance is a field that has a lot to do with applying the concepts into things that happen in real life, particularly finance. You have to use a concept in mathematics in real life financial issues.

4. Thorough

You need to be thorough not only in the mathematical calculations, but also in all the things that you take into consideration, so that you establish the cause of a certain occurrence or the solution to it. If you make mistakes, then you will be unable to come to correct conclusions.

5. Persistent

Persistence is the act of sticking to a certain thing despite the fact that it may not work out immediately. A person who will be successful in mathematical finance is the one who does not give up easily. Even when he is unable to come to any conclusion, he will keep at it to ensure that he ultimately achieves the goal.

6. Accurate

In this field, you will need to be accurate, minimize the mistakes that you make and you will eventually come up with the correct conclusions. Your accuracy will ensure that you do your work fast enough without having to repeat things and you end up saving on time.

Mezzanine Finance

Mezzanine finance is very similar to a second mortgage. You will use the stock in your company to secure the financing instead of opting for a different type of collateral like your home or a piece of real estate. Since you are offering the lender stock in your company, you need to be very diligent in making your monthly payments. If you fail to make the payments, the lender has the option to foreclose on the stick, which causes you to lose complete control of your business. If you default, the lender can call in the stock in just a few days instead of a few months.

Stock is considered personal property so it is much easier for a lender to seize it compared to a foreclosure on a loan or another type of financing. When a company seeks mezzanine financing, you are usually talking about some pretty large numbers. For the most part you will deal with numbers upwards of $2 million. It’s rare to acquire a loan for less than $2 million with a mezzanine loan. Because of this, lenders expect a lot from you. They want to see everything you plan to do with the money. How much money are you going to generate from your target audience with this loan? Provide them with a detailed list as to how much money you plan to invest into a number of different things like new equipment, etc. As you do this, they will be able to see you as a credible business venture and will have an easier time offering you the financing.

Your business credit will be taken into consideration with mezzanine financing. Lenders need to see that you have paid your debts on time and that you aren’t taking on more debt than you can reasonably afford to repay.

Search around for the right mezzanine lender. Some lenders will lend you $5 million at once while others will lend a lower amount. They often see some type of potential with your business when they loan this amount of money. Generally they will push you to get some tenants in vacant office space that can generate decent profits for your business.

New construction is another part of mezzanine finance. Lenders need you to develop land to construct new hotels, shopping centers, and other things. By doing so you will generate profits upwards of 70% of their investment; leaving them with a huge payday from your business.

Bridge Financing

Bridge financing is a method of financing, used to maintain business credit liquidity while waiting for an anticipated incoming cash flow. Bridge financing is commonly used when the cash flow from a sale is expected after payment for the purchase. An example would be when you sell a house and won’t receive cash for the house for 90 days, but you have already purchased a new house that requires payment within the next 30 days. Bridge financing would cover the 60 day gap in between payment.

Bridge loans are usually more expensive than conventional financing to compensate for the high loan risk. They typically carry a higher interest rate, points and additional fees that are amortized over a shorter period. The lender may also require lower loan to value ratios and collateral that would not be used in conventional financing. Although, they are also arranged more quickly and have much less documentation than other types of loans. Bridge loan interest rates are usually 12-15%, terms ranging less than 12 months. The loan to value ratios generally stay less than 65% for commercial property and 80% for residential, based on the appraised values.

Bridge financing is also typically done by banks underwriting an offering of bonds. If the banks are unsuccessful in bonds to qualified buyers, they are normally required to buy the bonds from the issuing company themselves, on terms that would be much less favorable than if they had been able to act as an intermediary and just sold the bonds to other institutional buyers.

Another type of bridge financing is used by companies before do an initial public offering. It is used to obtain the cash needed to maintain current operations until the stock goes public. Many times the company will offer stock at a discounted rate as payment towards the loan. It is essentially a forwarded payment on the anticipation of future sales. There are 2 types of bridging finance. Closed bridging and Open Bridging. Closed bridge financing has an exit date associated with the funds. This ensures that the loan can be repaid on this date and the interest rates are lower than open bridging. Closed bridging is less risky for the lender because it usually has terms of less than 12 months.

Open bridging loans have much higher risk for the lender. There is no exact end date on the funding although there may be set payment dates in order for banks to recoup some of the funds along the way.