What is the right kind of collateral for a hard money loan? It's a good question because there's a lot of misinformation out there. For one thing, it would be wrong to assume that stock portfolios can serve this function because they're incompatible with this kind of lending.
To borrowers, securities-based lending might seem like a good idea. It sounds logical to assume that using stock portfolios as collateral could potentially reduce rates on a hard money loan. But as some unfortunately learned during the housing crisis, borrowing against potentially volatile assets with a fluctuating valuation can be a losing proposition.
SECURING YOUR LOAN
Your company needs financing, but research and due diligence puts your personal information at risk. The more options you consider, the more vulnerable you become. All lenders want to run your credit and access your personal information. Do not let them. Let Mayava find you the best rate available, safely and quickly without putting you and your company at risk.
The Right Information, The Right Collateral
Stock portfolio-based lending is becoming more available in the marketplace but it has nothing to do with collateralizing hard money loans. Hard money loans are underwritten based upon the underlying value of a particular property, not the stock portfolio. Even though the values of both assets may fluctuate, the value of a stock portfolio is more volatile than a piece of property. Its instability precludes its use as collateral.
Choosing the right way to fund your business loan depends on getting the right information.
Make sure that your lender is quoting terms that reflect the underwriting of a hard money loan, not a securities-based loan. If the collateral is based on the value of the property, then you're off to a good start.
Potential Unwanted Tax Consequences & Unscrupulous Lenders
But using personal assets as collateral for a business loan is frought with pitfalls. A personal stock portfolio won't get the proper valuation as property would. It's also vulnerable to unscrupulous lenders, who may impose terms that border on usury. Fraud is another risk. Financial regulators have found cases where unethical investment firms transfered these assets to outside lenders who were not properly registered with the Financial Industry Regulatory Authority (FINRA), making it very difficult to ascertain their financial stability, their expertise or even their existence.
We urge potential hard money loan borrowers to take a cold, hard look at the facts. Stock portfolio assets and real property assets are two separate categories of collateral, and as such they would be categorized as two separate realms of lending. In the traditional hard money loan world, the ideal collateral would be commercial real estate. By working with a reputable lender who can furnish borrowers with the correct information about the right type of collateral, borrowers will have a much easier time pursuing a hard money loan.