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> Can you describe a realistic situation in which you receive a personal loan for $20 million that comes due at once that you cannot pay for by liquidating othe

> Can you describe a realistic situation in which you receive a personal loan for $20 million that comes due at once that you cannot pay for by liquidating other assets? This isn't a real scenario. No one will give you this kind of personal loan without collateral or proof of significant unencumbered assets. And at minimum, you'd be doing this through a corporation, or again, you are incompetent. The most obvious situation is probably where you've invested a certain amount of money in a highly illiquid asset, that can someday (i.e. 10-20 years from now) be liquidated for a significant capital gain. This could, for example, be a business or a plot of valuable land.

dpark 10y ago
How does that work? The bank gives you a noncollateralized loan so that you can buy a $20 million property and then they suddenly call the loan? They gave you the loan without proof of ability o pay? I have trouble believing that this is very plausible. It's so risky to both parties that I can't see why the bank would issue the loan. I can't deny that it's technically possible. I just think it's extremely far-fetched.
- charlesdm 10y ago
  Not really. Even if a loan is collateralized by an asset, that doesn’t mean it is easy to liquidate said asset at full value. For example, let’s say I buy a Monet painting for X million and a bank is willing to give me a collateralised loan of up to 75% of the asset value. If a bank decides to sell that asset tomorrow (i.e. at a suboptimal time) they might not even get 75% of the value back. Debt is a lever in business and some people make it big by leveraging big.
  - dpark 10y ago
    Sure. But the bank isn't going to give random Joe a loan to buy a Monet. That's why all this is far-fetched. There are scenarios that could result in 20MM loans being suddenly called. People with little assets generally don't get those loans though. It's doubly far-fetched to talk about loans to individuals for $20MM. If you're applying for a $20MM loan, you should have an accountant and your accountant should have told you to put this kind of thing in a corporation. You'll still lose a lot but it shouldn't bankrupt you personally.
    - charlesdm 10y ago
      Well, it depends on how wealthy you are and the jurisdiction you live in. Loans are not taxable income and if you would have to pay some sort of withholding tax on a dividend (if you would want to borrow against your illiquid shares for example), then it might make sense to take out a personal loan. A bank might also be more keen to give you a loan personally. But yes, obviously not that common. Random Joe won't be getting these. Random Joe doesn't have $20m in assets either, though.

dpark 10y ago

How does that work? The bank gives you a noncollateralized loan so that you can buy a $20 million property and then they suddenly call the loan? They gave you the loan without proof of ability o pay? I have trouble believing that this is very plausible. It's so risky to both parties that I can't see why the bank would issue the loan. I can't deny that it's technically possible. I just think it's extremely far-fetched.

charlesdm 10y ago
Not really. Even if a loan is collateralized by an asset, that doesn’t mean it is easy to liquidate said asset at full value. For example, let’s say I buy a Monet painting for X million and a bank is willing to give me a collateralised loan of up to 75% of the asset value. If a bank decides to sell that asset tomorrow (i.e. at a suboptimal time) they might not even get 75% of the value back. Debt is a lever in business and some people make it big by leveraging big.
- dpark 10y ago
  Sure. But the bank isn't going to give random Joe a loan to buy a Monet. That's why all this is far-fetched. There are scenarios that could result in 20MM loans being suddenly called. People with little assets generally don't get those loans though. It's doubly far-fetched to talk about loans to individuals for $20MM. If you're applying for a $20MM loan, you should have an accountant and your accountant should have told you to put this kind of thing in a corporation. You'll still lose a lot but it shouldn't bankrupt you personally.
  - charlesdm 10y ago
    Well, it depends on how wealthy you are and the jurisdiction you live in. Loans are not taxable income and if you would have to pay some sort of withholding tax on a dividend (if you would want to borrow against your illiquid shares for example), then it might make sense to take out a personal loan. A bank might also be more keen to give you a loan personally. But yes, obviously not that common. Random Joe won't be getting these. Random Joe doesn't have $20m in assets either, though.