My daddy used to say, “Son, as long as you don’t need it, a banker will lend you as much money as you want.” That’s still the way of bankers, especially when it comes to borrowing money to buy a horse. But things, they are a changin’.
Today bankers are a lot less hesitant to loan money for the purchase of a horse. They are more familiar with the “potential” of a show horse or race horse. Still, the banker isn’t as interested in the object itself, as he is interested in how much money you have and your ability to repay the loan.
Bankers never come right out and say that. They say, “We’d like to have evaluations of an individual’s assets, income, expenditures and contingent liabilities.” That means, “How much money have you got?”
Bankers always want to know what you are going to put up as “collateral.” That means what can they seize and resell if you don’t pay back the loan. It used to be all wealth was created by hard assets—land, machinery, cash, etc. That’s easy to seize. Today that’s all changed. Most wealth today is created mentally, by ideas and knowledge. Hard for bankers to seize ideas and knowledge, and so banks are struggling with standards on which to base loans.
When it comes to horses, bankers are much for likely to make a loan when they can visualize the horse as an integral part a business venture rather than seeing him as a recreational item. They see the potential to create new wealth.
When asking a bank for a loan to purchase a horse, the general response will be an unsecured personal loan. The borrower (you) is required to disclose all individual assets and liabilities, and substantiate earning power over a period of time. To get a loan, having a job is better than being self-employed—that’s just the way bankers think. Bankers like a check every two weeks; they can’t see the “potential for big, big profits.” If you have your own horse business, be prepared to show a business statement which will include a profit and loss report and a balance sheet showing before and after tax profit.
One banker told me, “There’s just no Blue Book on a horse, and you can’t get a registration title.” Not exactly true. A borrower could let the bank hold the horse’s registration papers, and all horsemen know a horse has a much longer and more useful life than the average automobile. Cars lose value the instant you drive them off the lot, but a horse could be increasing in value every time you ride him.
One banker suggested financing a horse through a line of credit. The potential buyer establishes a line of credit with the bank, still based on assets, liabilities and ability to pay back. The line of credit sets a limit on how much the bank will advance. A line of credit is a good way to buy at auction; it tells the auction company you’ve got the money in the bank.
“A line of credit is good for any horseman who makes frequent horse purchases,” one banker said. “The horseman could borrow as often as he likes without any hassle, as long as he stays within the credit line terms.”
If a bank does decide to grant a Collateral Installment Note for a horse purchase, the borrower and spouse, if any, must both sign. The note (loan) will require a complete description of the horse, plus a bill of sale. Many bankers will also want a photo of the horse. If the note is to be repaid over a period of 36 months or longer, the bank may also require mortality and liability insurance. (Not on you, on the horse.)
If repayment of the borrowed money is not made as agreed, the bank can take the horse by court action. If the borrower sells the horse and the amount due the bank is not recovered, the borrower is liable for any deficiency, plus court costs.
Why would you want to borrow money to buy a horse? Borrowing from a bank may be the best means of purchasing a special horse at the most opportune time. You’ve got to buy them right in order to sell them right. Now that’s an idea which can create a lot of interest with a banker.
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