Understanding Collateral

[athomas1]

Hi, I'm trying to understand how the collateral system works. I am thinking of starting a business but am not entirely sure If I could ask for a loan here like the one I would be looking for.
This is not a request for a loan, im just trying to see if this would be how it would work.

Example

I am looking into buying Two Bitcoin ATM's at $14,500 each (Total of $29,000).
I request a loan for $29,000 from the community and have assign $15,000 in escrow to the lenders. It could be done using multisig so that the Bitcoin automatically get sent to the lenders at each month and the interest for each month is paid from the earnings off the Bitcoin ATM via me.
If there are people will to agree to the loan then the lenders could send the money on to the selected ATM company itself and the ATM company could ship the ATM's to my door.

- Ideally this meets the capital requirements by putting actual Bitcoin in escrow to the lenders but also creating a physical track able purchase of Two ATMS that can be resold to recoup losses if a failure of the business occurs.

Questions

What would be the flaws in this?
Is there a better way to go about this?
any Idea what an interest rate on this would be?
Would it have to be a BTC interest rate or a USD based one?

And the reasoning behind this is to set up a loan where-in the risk of failing to attract customers to one bitcoin ATM is offset by having two locations.

[🏰 TradeFortress 🏰]

Nobody over the internet is going to lend you $29k to buy two bitcoin ATMs, with $15k sitting idle. Something people with the capacity to fund would do it themselves.

Try getting a loan from your family, friends, or find a business partner IRL. What if someone defaces / vandalizes your machine? Don't run a bitcoin ATM if you don't have the capital to do so.

[DubFX]

Nobody over the internet is going to lend you $29k to buy two bitcoin ATMs, with $15k sitting idle. Something people with the capacity to fund would do it themselves.

Try getting a loan from your family, friends, or find a business partner IRL. What if someone defaces / vandalizes your machine? Don't run a bitcoin ATM if you don't have the capital to do so.

True statement but listening to someone with 240+ neg trust ratings..oh well.

[athomas1]

That was my thought as well, but Bitcoin is a no trust needed system and again I'm only trying to generate a discussion on what would be needed for large loans to work. Such as turning those ATMs and control of those ATMs into smart property that can be transferred to the loaners upon payment failure. Specifically how to satisfy the collateral requirements of this subforum.

[🏰 TradeFortress 🏰]

That was my thought as well, but Bitcoin is a no trust needed system and again I'm only trying to generate a discussion on what would be need for large loans to work. Such as turning those ATMs and control of those ATMs into smart property that can be transferred to the loaners upon payment failure.

Then why wouldn't the loaner just buy the Bitcoin ATM themselves? What expertise do you bring into the equation?

[athomas1]

It wouldn't come from a single lender, instead multiple lenders offering what they're willing to risk....

[OnkelPaul]

Collateral works differently - you normally hand over something to the lenders that is valuable and can be liquidated easily (ideally it should be valuable enough to cover a total loss of the loan) but that you would not directly want to sell.
Normally, one would not use money as collateral as it is already liquid. Some lenders accept altcoins as collateral, but I'd see altcoins as liquid money too, so it would not make much sense to me.

About getting a loan from family or friends: Don't do that, especially when it's a high risk venture! Pissing off some business partner is bad enough, but losing a friend due to an unpaid loan is much worse (well if you choose to take a loan from an organized crime gang then pissing them off might be not so advisable...)

Onkel Paul

[eternalgloom]

You should really read this topic regarding collateral:
https://bitcointalk.org/index.php?topic=577765.0

A common question is why don't I just sell my collateral? Well the reasoning behind collateral is that you think it's going to appreciate in price or do not want to sell it, encouraging you to pay back the loan to have your collateral returned.

And you will never get a loan of $29,000 on this forum, probably not even if you were a hero member without offering collateral equal to the value of the loan.
In your case, I would try to get a loan at a bank.

[🏰 TradeFortress 🏰]

And you will never get a loan of $29,000 on this forum, probably not even if you were a hero member without offering collateral equal to the value of the loan.
In your case, I would try to get a loan at a bank.

I wouldn't because you would get completely laughed out.

[eternalgloom]

And you will never get a loan of $29,000 on this forum, probably not even if you were a hero member without offering collateral equal to the value of the loan.
In your case, I would try to get a loan at a bank.

I wouldn't because you would get completely laughed out.

You could probably get a personal loan though with higher interest rates.

[athomas1]

About getting a loan from family or friends: Don't do that, especially when it's a high risk venture! Pissing off some business partner is bad enough, but losing a friend due to an unpaid loan is much worse (well if you choose to take a loan from an organized crime gang then pissing them off might be not so advisable...)

I 100% agree with not doing business with friends or family. Thus, why I'm here, its one thing to earn a loan from people who are influenced simply because you're related and another to earn a loan simply based on the merit of your business idea.

You should really read this topic regarding collateral:
https://bitcointalk.org/index.php?topic=577765.0

Yeah, I had read that and saw the 110% suggestions. Which leads me to ask how and effectively 150% of collateral for a loan would not qualify as enough. I would guess it is because they asset up for collateral is not liquid enough (The ATMs). Could a problem like this be to set up a third party escrow who receives the ATM's and hand them over in person? I would assume that demand for this is pretty small and that there isn't a business that solely relies on revenue from this. Also I would think that the value of the ATM's would diminish immediately a minimum of 10% because they are no longer new. Thus, creating more problems with ones collateral.

[OnkelPaul]

You can use the thing that you buy from the loan as a collateral only if the lender can be sure to have exclusive control over it when you default.
An ATM that you place somewhere is probably not really usable collateral because the lender can't really prevent you from taking it away and disappearing.
Of course, financing for cars is often done just like that anyway: lender holds the ownership documents until the loan has been repaid in full, so you can't legally sell the car in the meanwhile, but you could still disappear with it.

But here's another solution for your (hypothetical) example:
If you have 15,000 on hand and an ATM costs 14,500, the straightforward route would be to buy one ATM, set aside 500 for installation and initial operating costs, and let the ATM work for you until it has paid for itself plus a little. Then you have a working ATM that will generate more income, and you have 15,000 with which you can buy a second ATM.
No loan, no collateral, no hassle. Sounds like a plan?

Onkel Paul

[jonald_fyookball]

  Something people with the capacity to fund would do it themselves.
 

Not necessarily.  Just because I have $30,000 to invest doesn't mean
I have the time or energy to run a bitcion ATM.  Maybe I don't have
proximity to a good vending location, knowledge of the required
maintenance, good rental space opportunity, or many other factors.

[Trading]

The risk of starting with two ATMs is much greater than the benefits of having two locations: I would choose well the only location and forget about the second one. Always start small.