By Bernice Napach
There's a new lender in town for wealthy individuals in need of quick cash. Borro.com, founded in the U.K. in 2009, is now operating in the U.S., making loans secured by luxury personal assets such as fine wines, art, diamond jewels and antique cars.
"We kind of position ourselves between the high end pawn shop and the deals too small for private banks," says founder and CEO Paul Aitken in an interview with The Daily Ticker.
Here's how it works: A wealthy individual in need of cash applies for a loan at borro.com or through a financial advisor, offering his or her precious asset as collateral. Borro then turns to an expert from its valuation team to appraise the asset and organizes the logistics to take possession of the asset. Within a few days, Borro wires the money to the customer. Aitken says the short turnaround may be the biggest draw for these loans.
Borro lends 50% to 70% of the collateral's value -- 50% typically for fine art and prestige cars; 70% for diamond jewelry and luxury watches. It charges between 2.5% and 4% interest per month for loans that usually don't last more than a few months. Borrowers are often small business owners who"have a deal they can do and need liquidity to do that," says Aitken. Borrow's clients have a net worth between $1 million and $10 million.
The company has lent $1 million since it started operating in the U.S. earlier this year. One example: a $24,000 loan secured by a case of 1989 Chateau Petrus valued at about $38,000-- more than twice the company's $17,000 average loan size.
Once borrowers repay their loan, they can reclaim their precious collateral, another reason why more people are attracted to Borro's services. They could have sold the asset instead through an auction house or online auction site but that usually involves a commission equivalent to 6 to 7 months worth of lending to Borro, says Aitken. And most important, they lose the asset. "Often people don't want to sell because of sentiment value or some other reason," Aitken says.
If borrowers default, Borro will sell the collateral, usually at auction. Even then Aiken says borrowers have little downside risk. "If someone can't pay back the loan, they won't lose their house." Borro will sell the collateral. If the proceeds are larger than the value of the loan, the borrower gets that balance minus an administrative fee.
Borro's U.S. operations are currently based in New York City but the company plans to expand U.S. operations, opening a California office within the next three to four months followed by other regional offices. "Despite the fact that we're largely online there is a physical aspect," says Aitken. "We need to have proximity in the big metropolitan areas to enable those transactions to happen efficiently."