What Is Luxury Asset Finance?
When it comes to buying the luxury items in life, you may be asset rich but cash may be somewhat lacking. Luxury asset financing can solve the problems that this brings for you.
High-value luxury asset finance is often used by those seeking to purchase and enjoy the benefits of owning a supercar, superyacht, or even a private jet, as you are able to maintain liquidity to invest in other more profitable asset classes yet still enjoy the luxury trappings and high living lifestyle.
What is asset finance?
It is not uncommon for high-net-worth individuals to purchase high-value items without depleting their capital. Instead, they choose to use assets they already own as collateral for borrowing to fund the purchase. Lenders secure your borrowing with assets which can include using your company’s balance sheet, inventory, accounts receivable, or other short-term investments or valuables.
Assets that can be taken into account will vary from lender to lender. It is certainly worth considering using the service of an experienced finance broker to ensure that you are offered the best terms for your borrowing.
Assets that may be used as security can include:
- Businesses and technology
- Plant and machinery
- Existing high-value collections
- Company balance sheets
- Investments and many more
Who uses luxury asset finance?
You are likely to have heard the saying asset rich, cash poor; a state often attributed to the wealthy. This can be a limiting factor that sees them borrowing to finance luxury asset purchases. Often wealth is tied up and the capital to hand is insufficient to make high-value purchases within the desired timeframe.
Some individuals choose to use the assets they have as collateral to take on short-term borrowing rather than free up capital by liquidating assets. When existing assets are more profitable, retaining them and borrowing against their value makes sense to secure the desired luxury items.
Luxury asset finance may sometimes be referred to as a bridging loan, which is commonplace in property purchases. Still, the same short-term, high-value lending is also available to provide high funding levels for short periods where the borrower intends to use the funds to purchase a luxury asset.
Mainstream lenders are, however, less likely to be as flexible as specialist lenders when it comes to the purposes of the loan. Luxury asset financing is a niche market not generally offered by high street banks, requiring a more structured collateral approach. For this reason, a broker with experience in luxury asset financing will present your situation in the best light to specialist lenders and secure the best terms for your situation.
Specialist lenders offer a highly personal approach that can see them securitize assets as diverse as precious metals, handbags, art collections, and fine wines, with bespoke financial solutions available for each individual on a case by case, asset by asset basis.
The first thing to get to grips with is that supercar finance lending is not designed to make luxury cars and vehicles available to those unable to afford them.
The purpose of supercar finance is to enable high net worth individuals to own and drive the best vehicles they choose without the need to liquidate more profitable assets to release the cash sums required.
Even with significant cash reserves, supercar borrowing ensures you retain liquidity and cash reserves for use elsewhere. Loan repayments can be made over several months from income, allowing instant purchasing, no unnecessary waiting or saving.
You simply buy when you want and repay with predictable monthly installments. Profits from existing assets and income cover the repayments without the need to liquidate and miss potential future returns, simply to enjoy a high-value car and lifestyle.
Specialist supercar finance lenders will consider various loan terms, with many prepared to offer up to 90% of the supercar value, which can run into millions for a Bugatti!
Interest is calculated and added on a monthly basis on the outstanding balance and loan terms can be tailored to include a balloon payment at the end of the loan period and reduced interim monthly payments. Bespoke lending terms can be arranged with repayments on a fixed or variable interest rate applied to each monthly repayment.
Similar to standard loans, your lender will release a pre-agreed sum for you to purchase your boat. When your vessel is crafted to order, this sum may be released in stages over the build time. This type of loan can require additional financial safeguards.
In the case of smaller boat purchases, the yacht itself can sometimes be accepted as the only collateral. However, where vessels required are extremely high value, such as super or mega yachts, additional assets may be required as collateral. A broker will help you negotiate the most favorable terms and collateral requests.
Using high-value art and luxury goods as finance collateral
Art-backed loans, often called fine art finance, are suitable for those who require instant cash to make a large purchase without selling their collection or art piece. In this case, your high-value art collection is used as security for your borrowing.
It may be that you have valuable artwork but little income or other liquidity and feel that a loan secured against the works will enable you to purchase other assets or investments to seek more lucrative returns. At the same time, you still benefit from any rise in value over the longer term.
Those with valuable art collections or luxury goods secure borrowing based on the value of the assets Lenders will offer loans based on many factors, not just the overall collection value. They will look at the desirability of the artist and lend-based saleability and demand for the work you own.
Whilst lenders never want to be forced to sell your artwork if you default on your loan, they will consider how easy the process would be when determining loan terms for you. Again, given the sums involved and the personal approach to borrowing, you may find the services of a specialist high-finance broker invaluable during lender negotiations.
Your artwork and assets may be removed from your possession while the loan is outstanding, depending on your circumstances and loan terms, to protect the lenders’ interest in the case of default or mishap.
As you can see, there are many options available to fund high-value purchases, using specialist borrowing to provide personal terms appropriate for your needs. High-value borrowing is the way for high-net-worth individuals to enjoy the trappings of wealth without liquidating assets or maintaining high cash liquidity.