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You may think that lending against non-mainstream assets is a modern phenomenon, a concept conceived in a cavernous City office during an early morning brainstorming session attended by sharp-suited types, but nothing could be further from the truth.

While instances of lending against valuable ‘supercars’ or vintage wine have become more commonplace, similar transactions have actually been with us for a considerable period of time.

For proof, readers need only cast their minds back to long-forgotten A-level English lessons and their study of The Merchant of Venice in which Shakespeare cleverly weaves a tale of love with that of honour, an unusual lending arrangement and throws in a little cross-dressing for good (and effective) measure.

In the play, Antonio mortgages a pound of flesh to Shylock in return for a short-term loan of 3,000 ducats in order to help his friend, the smitten Bassanio. In truth, neither party comes out of the transaction particularly well, especially as you could argue that Antonio’s life is only saved on a point of order, which makes his offer of collateral appear a little misguided.

However, that’s not the point and thankfully, there’s no longer any need for borrowers to go to such extremes, especially as the range of assets lenders are prepared consider as collateral is as broad as ever, although some are more resourceful than others.

According to the Wall Street Journal, last year, one American broker negotiated a loan of almost half a million dollars to a man down on his luck who wanted to buy and move to a much larger house before he became famous. It must have been quite some pitch, though the man’s collateral was an uncashed, winning lottery ticket, worth around $700,000.

Closer to home, an investor in rare musical instruments recently borrowed £85,000 on a short-term basis to take advantage of a lucrative business opportunity, using his valuable Gibson Les Paul guitar as collateral.

Brokers report an increase in the number of private investors who are raising capital with which to buy investment properties or second homes, using unconventional assets as security. These assets include a world champion show-jumping horse worth £300,000 (against which the horse’s owner borrowed £120,000), grouse shoots and even a salmon river in Scotland.

Borrowers are unlikely to find their local bank receptive to the idea of lending against what might be called ‘non-mainstream’ assets, although fortunately a number of specialist brokers are remarkably resourceful when raising capital for their clients.

David Johnson, managing director of Isle of Man-based Sterling Private Finance, says his company, which has raised millions of pounds for clients using non-mainstream assets as security, is “unrestricted by traditional lending parameters”.

“The first thing we consider when receiving a borrowing request from a client who might be using, say a vintage wine cellar or a diamond collection as security, is the quality and spread of assets. It is often useful if these assets generate an income,“ says Mr Johnson.

Sterling Private Finance does not lend to the general public. Instead, the company acts as a conduit between one group of clients, private and corporate lenders, and another, individuals or companies who have a requirement for short- or medium-term borrowing but do not have a mountain of what might be considered ‘traditional assets’ to use as security.

“We pride ourselves on structuring fixed or flexible term arrangements that suit both parties,” adds Mr Johnson. “Obviously, our lenders want to see a decent return on their money, while our borrowers require something better, in terms of interest rates and fees, than they can get from a high street bank. Frankly, however, unless we meet the specific requirements of both parties, the deal is unlikely to be concluded.

“While there’s more work involved in arranging non-mainstream loans than filling in a form at a high street bank, the truth is private lenders are generally happier to accept a slightly higher level of risk than other lenders,” says Mr Johnson. “Moreover, as we’ve been involved in this market for many years, we can usually present a prospective borrower with a lending offer surprisingly quickly.”

Although interest rates remain anchored at historically low levels, with little prospect of them moving higher for the foreseeable future, an inherent sense of caution, coupled with much stricter legislation ensures that banks are guarded when lending money. Many now prefer to recommend overdrafts, a hugely expensive means of borrowing money – almost all of which require some form of asset, usually a property, to be charged to the bank as security.

When asked how Antonio would have fared if he sought to borrow 3,000 ducats today, Mr Johnson ponders the question for a few seconds. “Unfortunately,” he replies, “Shakespeare would have had little drama around which he could construct a brilliant play, because I’m sure Antonio could have used a range of other assets against which he could borrow the money for his friend. And we would have been happy to arrange the loan too.”

© 2019 Sterling is a Registered Business Name of Sterling Holdings Limited. Sterling Trust Limited is registered in the Isle of Man Number 72969C and is licensed by the Isle of Man Financial Services Authority.

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