Commercial Secured Loan – The Traditional Bank Loan
The traditional secured bank loan is the bedrock of commercial financing and debt.
The bank lends money collateralized by assets which, presumably, if liquidated would cover the value of the note; thus the bank is secured, and even in default the bank will get its fair value through repossession liquidation or foreclosure liquidation.
The challenge and opportunity happens when the asset is worth LESS than the debt, thus leaving the bank partially unsecured. This is where opportunity exists and where much of our strategy works so well.
When a loan is written with inadequate collateral, collateral which in its current condition is worth less than the loan, there is room to negotiate.
Typically the assets must be valued at liquidated value as the only way the bank can get value out of the assets is through foreclosure liquidation auction, not a fair market sale; thus the lowest possible value is achieved.
This gives us the opportunity to buy out the assets from the bank for the liquidated value and lose the portion of the loan that is not covered by this amount. This frequently provides very significant discounts.
There are many permutations of this strategy, but the basic concept is as stated – secured assets as collateral purchased at the liquidated value.
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