Episode 51 on Power of the Purse is with Claire Hillier, the Managing Director of Commercial Lending at Borro. She is responsible for the end-to-end client experience, deal structuring and new lending across the group. Claire has a strong client-facing background and has more than 14 years’ experience working with financial services.
Luxury Asset-Backed Lending
Often times, people with wealth use assets that are somewhat unconventional in terms of collateral. This includes things like diamonds, wine or cars that are used as collateral for lending. It would seem that wealthy people could simply go to their bank manager and go a traditional route for a loan. But that is not always the case.
For example, very wealthy people often own a huge amount of money, they have extortionate incomes, but actually only get paid once a year. Or maybe they are running several businesses and they are constantly channelling funds into different businesses, and they hit wall in terms of income. Luxury asset-backed lending is not distress lending, wealthy people have the money to pay their bills and living expenses. This sort of lending is for when they want to buy more property, another business or invest in things abroad.
Determining someone’s creditworthiness
Unlike a traditional lender, who would be interested in your financial background, your cash flow and your ability to repay the loan, this type of lender is primarily interested in the asset. The lending decision is based on the saleability of that asset, how fast it can be sold and what can be achieved in the event of a default. The client’s background is of less interest to this sort of lender.
Since the asset is of such importance in this transaction, these lenders spend a great deal of time doing their homework. Most importantly, they are concerned about provenance, which is basically finding out whether the borrower is the owner of the asset. Lenders will sometimes ask for personal guarantees, depending on the risk associated with the transaction. Because lending decisions are based on the resale value and the liquidity of the asset, it can be challenging to determine an asset’s value when the asset is rare or unique. Auction houses and experts that have experience working with that particular asset, work with the lender to help determine its value.
Typical Terms of the Loan
The terms of an luxury asset-backed loan can vary, but are typically anything from two weeks up to three years. This type of loan is comparative to a bridge loan. Wealthy people can get a line of credit from their bank, but it could take up to eight weeks, so while they are waiting for that solution to be put in place, they use this type of loan in the meantime. Although, it isn’t a low cost option, it can cost one percent to two and a half percent a month.
How do people find out about this kind of lending?
Usually, the type of client that wants this sort of solution, has a team of people working on it for them. So lenders work with private banks, wealth managers, real estate managers, brokers, family offices and art galleries and inform these agencies of their services.
So it really does vary. The loan-to-value is decided based upon risk, and that really comes down to what could happen in the event of a default. So typically, cars sit around the 50 percent mark, art and antiques will be anywhere from 40 to 60 percent. Jewelry and watches are a little bit higher, at around 70 percent, and that’s just simply because they’re the most liquid asset. Lending decisions are based on how easily the asset can be sold in the event of a default.
About Claire Hillier
Claire Hillier is the Managing Director of Commercial Lending at Borro. She is responsible for the end-to-end client experience, deal structuring and new lending across the group. Claire spends much of her time working with clients and partners tailoring lending solutions. Prior to joining Borro, Claire was Senior Channel Manager for Lloyds Banking Group’s personal loans business, responsible for telephony lending performance at Lloyds, Bank of Scotland and Halifax. Claire has a strong client-facing background and has more than 14 years’ experience working within financial services.