Collateral Asset Valuation and How It Works
Nearly all lending involves some sort of collateral that the borrower allows the lender to place a “lien” on. A lien is a legal instrument of record, which ties up the collateral so that it may not be sold, refinanced or transferred without the debt first being paid. Depending on the type of loan you are looking for, some lenders will be more specific about what collateral they need, while others may just request a certain dollar amount, and accept it in any form of asset that you have available.
Essentially, collateral gives the lender recourse if you don’t pay. In hard-money lending, the collateral is real estate of some sort, whether it be land, residential, retail, etc.
Where Asset Valuation Comes into Play
When a non-cash asset is being used for a loan or line of credit, it has to be of a certain value. Offering someone the title on a $50,000 property in exchange for a $450,000 loan, for example, will not cut it. To get approval for the collateral that is put forth, it must be valued appropriately. Asset valuation is a simple process where the lender will determine the exact value of whatever asset you put …
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