Once the Principal has successfully received their collateral and have negotiated a line of credit against it, they are now in possession of short to mid-term business capital…
Once the Principal has successfully received their collateral and have negotiated a line of credit against it, they are now in possession of short to mid-term business capital. Some would say mission accomplished. However, at this juncture it is also important to plan ahead and ensure that the exit strategies chosen by the Principal are always kept in-mind and worked towards.
A good tip is to start to implement and assist the exit strategy from the very beginning and from the point of when the Principal actually receives the credit or loan.
If the Principal intends to refinance their project as the exit strategy, they may consider leveraging the credit funds raised against the collateral. For example: If the Principal is purchasing real estate for development, they may choose to use a portion of the raised funds to place as a deposit. Then, utilize conventional finance (i.e. secured loans or mortgages) to raise the balance. As there will be no encumbrances taken by either the Provider or the Lender over the assets that you purchase, then only security for raising the funds will be the collateral itself – it is possible to use pledge the purchased assets and therefore leverage considerably.