By: John Pratt
Who knew collateral could be so much fun?
Here in Chicago, a well-known restaurateur is financing his newest venture with a loan obtained with his aging wine collection as collateral. Rather than simply letting his $300,000 wine collection age for years in a forgotten cellar, Nick Gangas decided to put it to work for him. With his fine wines as collateral, Mr. Gangas was able to obtain a $150,000 loan at much lower interest rates (think 8-10%) than traditional lines of credit.
The emergence of the Uniform Commercial Code (UCC) has made it possible for art and wine collectors alike to keep their collections rather than turning that collateral over to a lender. Since UCCs are legally binding, they also ensure that lenders are able to seize collateral should the borrower default on their loan. It’s a win-win for everyone.
There are a few caveats that need to be mentioned, however. Wine used as collateral must be valued and verified by an expert, and each bottle (or case) must have proper documentation in order to minimize the risk of fraud. It must also be stored in an approved facility and cannot be moved until the loan has been repaid. Even with these stipulations, opening more options to those looking for financing is always good for business and entrepreneurship.
While the number of people with valuable wine collections is fairly small, the ability to obtain financing through these less traditional means, as a result of the UCC, indicates an important and potentially lucrative shift in the lending market. In the near future, we may see more restaurant entrepreneurs financing their dreams off the wine stock in their cellars.