Why The Rich And Famous Need Quickie Loans Too
It’s a quirk of life that people who become rich don’t always feel much better off than they did before they were wealthy. That sounds ridiculous, but in some cases it’s a reality. As consumers we are conditioned to live, if within our means, then right up against them.
This might explain why Borro, a lender that swaps high-value assets for quick cash loans, turned over £10 million in 2013 and is set to improve on that figure this year, having opened a branch of the business in New York. Being rich doesn’t always correspond to being comfortable, it seems.
The problem is one of liquidity. People with good incomes buy bigger houses, better clothes and faster cars that are costlier to finance, and they don’t always have a lot of spare cash to spend on spur-of-the-moment impulses or needs.
A case in point is this women, who braved the ire of Daily Mail readers by claiming publicly she felt cash-strapped despite her husband’s £100,000-a-year salary (the reason being her two kids are in expensive private schools – £5,000-ish a term x 2 = no great mystery).
But Borro’s chief executive Paul Aitken thinks the growing popularity of asset lending to high-net-worths is a bit more complex than people simply spending beyond their means. Yes, he acknowledges, in the shadow of recession even wealthy individuals can get into trouble, especially if they leverage their capital to buy things they can’t comfortably afford.
His theory accepts that even the rich don’t always have cash to burn. Entrepreneurs, for example, may have valuable businesses but not necessarily any money in the bank. Some of his business customers come for loans to pay off surprise tax bills, while others borrow to invest.
The second of these scenarios is what Mr Aitken is all about, and as a motivation it will make perfect sense to opportunistic go-getters. Borro charges five per cent per month on loans of £100,000 or less, and three per cent on bigger bungs. If customers can make 10 or 20 per cent (or more) a month on the capital sum (assuming they can also pay back the loan), then why not do it?
There are a host of other benefits to asset lending of this nature. One is that the item, as opposed to the borrower, is the thing under scrutiny. Banks, which would no doubt offer much better terms, also put customers through a feeding frenzy of due diligence before lending big bucks.
Private asset lending leaves individuals and their credit ratings unscathed, plus the process is lightning fast. In an interview with Reuters posted on his website Mr Aitken says he had agreed a cash loan of £78,000 the day before, mere hours after it was requested.
When called upon, he can drum up a series of examples in which people have sweated their assets with Borro before paying off the loan and getting the items back:
– $1.2m of lending secured against a selection of old masters, client was looking to invest in an offshore opportunity and had 48 hours to complete the transaction.
– $480,000 secured against two pre-war vehicles. Customer has a very small window of opportunity to be part of a large property deal and within 22 hours of receiving the enquiry Borro had valued, collected the vehicles and released funds to his account.
– $65,000 secured against a five-carat diamond ring. The client is a fashion designer who comes to the business twice a year when preparing for Fashion Week. The designer uses the funds to buy materials and pay show related costs.
Other big deals on record with Borro include an advance of £380,000 for a selection of Warhols, a Bugatti with a loan value of £350,000 and a nine-carat emerald cut diamond weighing in at a sparkly £280,000.
In February, the team approved a loan of $70,000 against an Oscar statuette – the story understandably went viral. The month before Borro announced it had leant a total of $100,000,000 against luxury items – presumably to energetic freebooters and asset-laden deadbeats alike.
But when you look at the numbers, Mr Aitken’s assertion that his customers borrow money to invest and not to cover a big hole in their finances has credence. If these guys were genuinely hard up, why not sell the items and pocket a whole lot more dough?
He says 90 per cent of punters are able to pay back loans and he wants Borro to be seen as a realistic segment of the burgeoning alternative lending market in the UK; perhaps in the same way rare stamps, fine wines and classic cars are increasingly seen as viable alternative investments.
“During the credit crunch there were many people looking for alternative sources of finance like all of the new wave of alternative lenders, we seized that opportunely,” he says.
“One of the interesting patterns we are seeing whilst the economy recovers is that our growth is accelerating. This is because the majority of people come to us because they want to realise an opportunity, when people are bullish our business performs better.”
So the next time you’re confronted with a multi-million-pound-too-good-to-be-true-offer-of-a-lifetime and the bank won’t play ball, it might be worth your while getting the loft stairs out and dusting off that old chesterfield/mink/broach.
The moral of the story seems to be that rich people want convenient credit as much as us average Joes. In fact, more of it. But like many things in life, it’s what they do with it that makes all the difference.
Read the full article at Forbes