Borrowing against graded cards

[sphere and ash]

Imagine that you could borrow against graded cards. The minimum loan would be $25,000. Loan-to-value would be 50%. Rates would be L+6% to L+8% (L is currently 2.5%).

What is your best guess as to how much would be borrowed in a year? Could you see borrowing against your graded cards under these terms (I recognize the minimum is prohibitive for some)?

Thanks for your help. I’m a memorabilia guy with very limited knowledge of cards, but I’m intrigued by the business opportunity. Any other thoughts would be appreciated. Thanks.

[bnorth]

Originally Posted by sphere and ash

Imagine that you could borrow against graded cards. The minimum loan would be $25,000. Loan-to-value would be 50%. Rates would be L+6% to L+8% (L is currently 2.5%).

What is your best guess as to how much would be borrowed in a year? Could you see borrowing against your graded cards under these terms (I recognize the minimum is prohibitive for some)?

Thanks for your help. I’m a memorabilia guy with very limited knowledge of cards, but I’m intrigued by the business opportunity. Any other thoughts would be appreciated. Thanks.

There are places that already do this. I can't remember their name but one of them has advertised/posted on here before.

[vintagetoppsguy]

Originally Posted by bnorth

There are places that already do this.

Didn't PSA try this years ago too, or am I misremembering?

[vintagetoppsguy]

Originally Posted by vintagetoppsguy

Didn't PSA try this years ago too, or am I misremembering?

https://forums.collectors.com/discus.../psa-loan-dept

It failed 12 years ago. It would fail again today.

[PiratesWS1979]

Also look at the potential added revenue from auction sales. What if only 500 borrowers were able to drive the monthly auction price they bid on, whether they win or not, by JUST $100 on the $1000 + $500. That would be approx $100 @ 8% profit from fees for $8 x 500 borrows x 12 auctions, that’s 48K just by encouraging a little extra bidding.

[RedsFan1941]

isn't that pwcc's big pitch right now? they store your cards in their facility and will loan you money against the value?

[vthobby]

Originally Posted by RedsFan1941

isn't that pwcc's big pitch right now? they store your cards in their facility and will loan you money against the value?

Yes, it's called "The Vault" from PWCC and I am already signed up!

Peace, Mike

[Peter_Spaeth]

Pre-War Pawnbroker?

[sphere and ash]

Originally Posted by vtgmsc

Yes, it's called "The Vault" from PWCC and I am already signed up!

Peace, Mike

Thanks for pointing this out. It’s listed on the PWCC as “coming soon.” Rates are 1% per month, which is higher than I was thinking, but PWCC’s presence may be enough to kill the idea for me unless the volume is relatively high.

[RedsFan1941]

what could go wrong?

[vthobby]

You can actually sign up and have cards that you win on Ebay or any major auction house sent to the Vault right now BUT you can't send them cards yet from your personal collection. I'm not sure why that is but that is the latest from them.
I think they will be accepting more in mid 2019 from personal collections.

My opinion is that it is a brand new concept and they want to test it out slowly rather than having collectors sending them hundreds of graded cards at once.

Just IMO, thanks.

Peace, Mike

[Dpeck100]

This is such a complicated topic in reality. I work in financial services and there are quite a few clients that borrow against their securities positions using them as collateral and not in the form of a margin account but an asset backed line that is LIBOR plus 0.50 up to 2.25%. There are different advance rates on different securities and some that don't qualify at all. The advance rates are driven by liquidity and by the implied volatility of the asset class. If this was to be successful you would need to limit it to the most liquid cards because trading cards can be inherently volatile and using a lower advance rate for loans lasting more than a few months. Imagine a one off sale of an auction going for much lower than the VCP average and triggering a margin call. Or worse yet using data from a few years ago where many cards collapsed from record selling prices and once more triggering a margin call. The interest rates you quoted are on the high side and obviously due to the risk associated with this scenario. I have over 50k in graded cards and If I needed to borrow 25k I would use other avenues. I really hope this doesn't become a popular form of lending for hobby participants because if there is a downturn this could exacerbate it significantly. The reason banks and broker dealers will lend against securities is the ones they choose are liquid and can be sold quickly. Just imagine if a margin clerk said we are calling this loan and then simply auctioned your cards off with limited notice and if there was a few hobbyist getting called at the same time the cards in question could sink significantly and cause a cascading event. Another big issue would be if these same collectors are using the funds to buy more cards their risk has increased significantly making it harder to pay back and potentially driving up card values in the short run and making their new entry points at higher levels and amplifying the risk in the card market. Where I do think this is reasonable is for very short term loans. For example if you are auctioning off cards in a month or two and want an advance to purchase something that comes up and the lender has your cards as collateral lined up for sale then it becomes more of a bridge loan and doesn't create the issues I mentioned above.

[Rhotchkiss]

This is PWCC’s intended model, and personally, I think it’s brilliant theoretically but fails in reality. Some have expressed concern over licenses, interstate activity, usury laws, etc. Thats a huge deal. But assuming the legal stuff is worked out, I think it’s a great business at its core - you are fully secured (collateral will not likely drop 50% in value), you are physically holding the collateral, and you can liquidate with ease considering you have a large auction house. Borrow from investors at 5-6%, lend at 8%+ and keep the spread. The only question (aside from legal) is whether there is enough volume to make going into this lending business worthwhile - 200bps on $1mm is only $20k, and I would think one would have/want to clear $500k/year to make this business worthwhile, and the lender would need to generate $25mm of loans to gross $500k (of course, these economic terms are purely hypothetical). However, I do believe neither the investors nor the volume will be there.

First, Assuming we are using accredited investors (which we must), i doubt investors would be content with anything less than 6%, and many would require more, especially with no tax shelter on the income (e.g., depreciation, pass through expenses, etc). Second, I don’t know that you could drum up the lending volume to make it worthwhile, unless you are dealing in tons of lower-value cards, which is like death by paper cut. I imagine that (unless cards have been owned for many years), collectors owning high-value cards would not borrow at 8%; if borrowing was necessary, they would more likely resort to lower-interest, tax deductible HELOCs or business loans. Thus, I imagine most of your borrowers would be lower net worth individuals, borrowing against 3 and 4-figure cards; and remember that 50% on $1000 is only a $500 loan, at 8%, is only $40/year in interest, which means you need to make 12,500 of these loans to gross $500k in interest (you still owe your investors their 6%)- death by paper cut.

Great idea in theory. However, I have my doubts that it works in real life, due mostly to a lack of volume. If it did, I’d be an investor.

[Peter_Spaeth]

I don't know, but my guess is that most people with 50K or more in graded cards are not going to be needing to borrow money, and if they needed money they would just sell for closer to 100 percent of value rather than borrow at 50.

[ullmandds]

I personally would never do this.

[obcbobd]

Originally Posted by sphere and ash

Imagine that you could borrow against graded cards. The minimum loan would be $25,000. Loan-to-value would be 50%. Rates would be L+6% to L+8% (L is currently 2.5%).

What is your best guess as to how much would be borrowed in a year? Could you see borrowing against your graded cards under these terms (I recognize the minimum is prohibitive for some)?

Thanks for your help. I’m a memorabilia guy with very limited knowledge of cards, but I’m intrigued by the business opportunity. Any other thoughts would be appreciated. Thanks.

I'm a big fan of "don't spend what you don't got", so I'm a big no. 8.5% to 10.5% seems an awfully high interest rate.