Yes, you can make money as a Secured Party Creditor!
This comprehensive article reveals how it works and best SECRET tips to help you.
If someone was to lose their job our first response most likely would be to sympathize with the individual and indicate that we were sorry to hear the bad news.
And, what if, we were to come across that same individual a few days later and asked how things were going and again express our sympathy about the loss of their job.
First, this company has paid $25+ million to members:
What would be our response if they said no that’s a good thing because if they hadn’t lost that job then they wouldn’t have found a new job which ended up being a dream opportunity for them.
A bit confusing, but has happened for certain people in these types of circumstances and others.
When events occur in our lives, we have a tendency to characterize those circumstances and define them as either good or bad.
It has been said that we have not been given a good life or a bad life, but we have been given a life.
Whether we make it good or bad is up to us.
The same can be true of our finances as there is good debt and there is bad debt.
Good debt can be defined as something that you owe money on but there is a return or reward for going into debt.
Prime examples could include owning a home or student debt.
Both areas of indebtedness pay return in the long run.
Bad debt could be the carrying of a credit card balance that although you have something to show for it, you are paying higher interest rates by not paying off the balance.
25 Best Tips to Help You Make Money as a Secured Party Creditor
1. Know What a Secured Party Creditor is
A secured party creditor is an individual that lends money to an individual or any organization.
The other caveat is that the secured part of the process involves placing an asset or collateral up against the loan amount borrowed.
Therefore, if the loan goes into default the lender of the money can lay claim to the collateral.
2. Know the Process
The process of being involved in a secure party creditor agreement is by having a security agreement legally drawn up and then the borrower and the lender agreeing to the terms.
When an agreement is reached, the parties involved should sign indicating they are in agreement and acknowledge the terms and signatures obtained.
The obtaining of the signatures should be done in the presence of a notary.
3. Know the Terms of the Security Agreement
The terms of the agreement should clearly outline and clarify what the terms are as it relates to the lending of money by the lender to the borrower.
In addition to the collateral that is being leveraged against the money that is borrowed, the agreement should contain other basic requirements.
Some of those requirements include
- Property being used as collateral that is free of outside means
- Notification of any changes in address
- Better notifying the vendor about any value decreases
- The leveraged collateral should be maintained
- The property utilized as collateral should not be in violation of any loss
4. Know the Requirements
In order to be a secured party creditor, there are a number of requirements that need to be met.
The first requirement is the preparation of the document which reflects the agreement between the debtor and the lender as it relates to the security interest involved in the terms.
The other requirement involves the security interest which is the notice to the legal system of what is occurring between the two parties.
These two steps are necessary as just simply stating that an agreement is secured is not sufficient.
5. Examples of Debt
The two most common examples being involved in a secured party creditor arrangement include home mortgages and auto loans.
However, there may be times when a small business may need a loan and as part of the loan process may need to offer collateral in the event that the loan is defaulted upon.
Another important consideration in the secured party creditor process is the terms reflecting repayment.
Those terms would include the percentage of interest affixed to the loan, frequency of payment, and how many years are involved in the paying back of the loan.
Also included should be any penalties if the payment is not made on a timely basis and at what point in time can the lender take legal action.
Also See: How to Really Make Money by Lending Money.
7. Specific Clause
When a secured loan goes into default, things can get rather “messy.”
Therefore, a good idea is to build into the contract the option to seize the collateral when the terms are not met.
Another important component of entering into the security agreement is relative to the collateral that is being placed against the amount of money borrowed.
Specifically, the coĺateral should be clearly defined as to what the item is.
The definition should not be broad or generic but specific.
In fact, in the UCC, it is indicated that there should be a reasonable description of the collateral offered.
That description should include:
- Specific listings
- Quantity of collateral
- Categories of collateral
- Description by type
Another legal term as it relates to using collateral for a loan offered by the borrower to the lender is hypothecation.
This term has defined as the process of agreeing to forfeit an asset that is used as collateral in exchange for money loaned.
If you cannot repay the loan, then the lender can repossess the asset that is offered as collateral.
Hypothecation isn’t in every type of lending agreement.
10. Examples Of Collateral
The items that can be used as collateral as part of the agreement between a borrower and lender can vary from one situation to the other.
Of course, it would be dependent upon the goods produced or owned by the business or the individual.
Examples could include:
- Inventory – if a business maintains an inventory of products this inventory can be used as collateral.
- Farm Products – can be used as collateral and can be the actual equipment, farm products, livestock, crops, and more.
- Cars, trucks, RVs, etc.
11. Floating Liens
Another aspect of the security agreement, if agreed upon by both parties, is the option of including floating liens.
Typically, a secured loan would be backed by collateral that would be classified as fixed assets.
However, a floating lien pertains to assets that the business currently has or may be short-term assets because they are part of the inventory and it may change in value.
Therefore, with a floating lien, the loan is secured by any new items that may be purchased but are still part of the company’s inventory or assets.
12. Recourse Loan
As it relates to utilizing collateral on money that is borrowed from the lender, there is the option of utilizing a recourse loan.
A recourse loan is a legal option for the lender to seize any of the assets from the borrower if there is a default on the loan.
With a recourse loan, even if the assets were not included in the agreement as collateral, those assets would still fall under the opportunity of the borrower to seize those assets.
13. Second Lien Debt – Junior
If an individual or company receives additional money to what you have loaned them as part of the secured loan process any additional loans taken backed by is known as a second lien debt.
The importance of distinguishing between the two is that the first loan gets repaid if the loan goes into default and the assets are liquidated.
Following the full repayment of the first borrower then any subsequent liens or junior liens are then paid if monies or assets remain.
Again, this company has paid $25+ million to members:
14. Attachment of Security Interest
The process of attachment is a critical component of completing the security agreement.
Once this process has been accomplished then the creditor becomes a secured party.
To make this attachment of security interest valid the following obligations must occur
Exchange of value must occur
The debtor can still utilize the collateral
There must be an agreement signed by the debtor which authenticates the security agreement and reflects the debtor’s intention to grant a security interest in the collateral outlined
It is important to remember that although the loaning of money sealed with a handshake and a promise of repayment is important, this is not a secured loan.
In order for the loan to be paid back and for it to be legally binding, the individual, regardless of whether they are friends or family, needs to enter into a security agreement with the lender of the money.
Perfecting is terminology that is used in the secured party creditor process.
The definition would reflect that the “perfected” agreement ensures that the party that is secured can claim the promised collateral if in the event there is a default on the loan.
Although this process of perfection is not mandated by law it is still an important step for those who have an interest in claiming the collateral as part of the loan agreement.
This process of perfection provides security to the lender to ensure that the collateral is safe from other lenders.
The process of perfection is accomplished by
- Filing finance statements
- When the security interest is attached
If there is a default on the secured loan, there are options for attaining resolution
Those actions include:
Of course, as with any loan, the financial incentive of providing the loan is repayment of the loan amount with interest.
Often, with a collateral secured loan, the interest rate is lower.
In any case, this is profit that you will realize as a return on the money that is lent it out to the borrower.
19. Collecting on a Verbal Agreement
If the issue at hand is a promise to pay back money that has been borrowed but there is no formal written agreement and was only verbalized, there are steps an individual can take to be paid.
Some of those steps include:
- Reaching out and meeting
- Proposing a new written agreement for repayment
- Sending a letter if being avoided
- If continual avoidance then possibly small claims court or a lawsuit would be in order
20. UCC-1 Form
If the individual who has borrowed the money or the borrower goes into default on the loan, then the lender has the option of making a legal claim.
This process has involved the filing of what is known as a UCC-1 form.
It is important to note that each state may have a different process as it relates to this form.
The purpose of the form is to claim a lien on the property that was put up as collateral.
21. Use YieldStreet
At YieldStreet you have the opportunity to invest in alternative investments.
Those alternative investments include commercial real estate, art, marine projects, and more.
The investment minimum is typically set at $10,000 and investments are backed by assets that provide some protection as it relates to the possibilities of default.
Most investment opportunities are only open to accredited investors.
22. Use PeerStreet
PeerStreet can be defined as a crowdfunding platform that invests in real estate opportunities.
The minimum investment to utilize Peer Street is set at $1000 and there are no fees
Although it appears that borrowers do not need to provide collateral, the Pierce Street website indicates that on behalf of the investors, they will do their utmost to protect the investment and maximize proceeds as quickly as possible.
23. Use FundThatFlip
FundThatFlip provides a platform for an investor to receive passive income.
With this site, there is no managing of properties and to be involved requires that you as the investor are accredited, and then if so you can invest in home ownership where the intent of the owner is to flip the home for a profit.
This site indicates that they are extensive in their research of the borrower so that the probability of defaults is extremely low.
The site also indicates that even if the borrower defaults on the loan the investor will still receive some of their principal back.
24. Use RallyRoad
The Rally Road app permits members to invest in what is classified as “blue-chip” collectibles.
The process involves each of the assets listed on the app being fully vetted by industry experts with the team also being involved in professionally maintaining and monitoring the assets around the clock.
There is a scenario or story surrounding each of the investments that include videos, photos, records, receipts, etc.
If the investor is interested in what they are viewing they then can invest in that specific asset with one click.
Of course, there are always opportunities in which a small business or individual is looking for a loan and if you have the resources this may be something that you would like to consider.
The smart thing would be, even if you know the individual, to ensure that an agreement is in place that captures the majority of the items listed above and that collateral is part of your safety net in the event that default happens.
While living in the northwest part of the country I got into a little bit of financial difficulty and found myself needing a loan.
We did not own a home but we’re renting and I had nothing of value that I could offer a creditor to obtain money and provide them security in the event of the remote chance that I would default.
However, I did own a car that I had purchased for $1,000 and had the title.
I was able to get a title loan on the car at a high-interest rate and the collateral required by the title loan company was that they would put a lien on the ownership of the car.
It was not a comfortable situation but necessary.
The title loan company had a new client that was paying monthly payments at a high-interest rate, and I had $2500.
Everybody was satisfied but realistically, it was a bad decision.
Earning Money as a Secured Party Creditor FAQs
What Three Things Do You Need to Have a Properly Perfected Secured Creditor?
The three requirements are:
- Giving value
- Debtor rights in the collateral
- Authenticated security agreement
What Happens When Collateral is Sold?
If the individual unwittingly sells part or all of the collateral they must contact the lender immediately.
They then therefore either pay all or a portion of the loan or arrange for replacement collateral.
You Can Do It
If you have the money and would to provide a secured loan to a business or individual it makes business sense to do this.
You can feel good about assisting someone with a need and with the loan being secured with collateral your risk is minimized.
Lending money can be a complicated issue because there may be the risk of the individual or business being unable to pay back the loan.
The best way to loan money at a fairly decent rate of return is to do your due diligence in determining whether the business or individual represents a low-risk investment.
This low risk can be determined as it relates to their use of credit, history of payment, credit score, etc.
Even then there is no guarantee of repayment but loan money that is secured with collateral is certainly a better option.
Loaning money for a return on investment is good, someone defaulting on that loan is bad, but securing that loan with collateral is good.
Again, this company has paid $25+ million to members: