Looking to see what the interest is in term loans on RI/ORRI for when life's events happen. All to often individuals and family's are forced to sell their royalties and mineral rights in order to cover short term expenses losing out on future income and possibly more wells being drilled within a unit. Banks will only loan if your royalties are large enough but there is nothing between selling and those with large royalties. If someone would provide term loans to cover short term expenses while allowing you to keep your rights and royalties would it be of interest? What would people want it to look like?
Thoughts.......
Phillip -
You will need to check with the Monitors, but it is my understanding that they do not allow Solicitations on The Forum.
Perhaps you could buy some advertising space or something.
Hope this helps -
Charles
Not advertising (no company ever mentioned), noticed that there is a lot of discussion of selling interests but not on loans....would like to see if that is a viable option for people or not....
Dear Phillip,
i think that if it were properly marketed, a successful venture could be made loaning money using the royalty asset as collateral. There have been several posts on this board asking for just such a service.
Best,
Buddy Cotten
Big issue I could see with this is trustworthiness with mineral owners. I know that there are some shady operations out there, like in every sector of business, that offer sub-prime loans for minerals. I am guessing it would take a team of prominent engineers, land men, etc. and maybe even some PE money for people to really trust in the model. Openness is sometimes hard to come by with buying/selling minerals/RI/ORRI which is why I know it is advised for everyone to get multiple offers from reputable companies, it might take some PR work to get people to really trust in it as a viable option to selling outright.
I have loaned money to royalty and mineral rights owners where they used their mineral interest or royalties as collateral. With interest rates so low it works out well for both parties and with the the loan backed by the minerals or royalties as collateral I was able to give a fairly low interest rate. Online banking gives the highest returns on a savings or CD and even there one only gets around 1.25% so everyone is looking for yield. Most banks have no method set up to appraise mineral interest and therefore can not loan on this type asset.
I think that’s a great way to look at it, Tim. I once did a long-term loan arrangement with a relative where I paid her one percent over prime determined on the anniversary of the note every year. That way she got more interest than she would have most anyplace else and I got a really low interest rate. Everyone was happy and there was never a problem.
Donald,
I didn't think personal info. and advertising was allowable here but since your going as far in your advertising as showing your web address why don't you go ahead and tell us what you charge for an interest rate? Maybe a telephone number might also help your ad.
Donald Skotty or should I say royaltylend,
At 18% interest and only paying up to 25 times their average monthly net royalty and the amount may be less, I can see why you wouldn't want to say what your interest rate is and if they default you get their royalty for a mere 25 times, sounds like your really taking advantage of people.
Mineral Joe,
Really?
I have no problem acknowledging the18% interest rate. For some it makes perfect economic sense (like the guy who needed to pay-off an authentic loan shark 100% interest loan or the many who have paid-off credit card debt with our loans). Some, like you, have said 18% is too high. Fine. Our product is not right for everyone, but it is easy to get in and out of (approximately 20% of our borrowers pay-off their loans within the first year). That's two years ahead of schedule.
With respect to your comment that "it sounds like you're really taking advantage of people." It wouldn't "sound" that way if you knew the facts. We have never foreclosed on a loan -- not even the one in Dunn County, ND that has been in default since Oct. 2015. We don't think that would do our reputation any good, and foreclosing is not our core business. However, as in your surface mortgage, our subsurface mortgage needs to include security recourse to protect our investors -- but only as a last resort. Our promissory note doesn't even contain a late or short payment penalty -- personally I consider the 18% on the unpaid balance to be sufficient penalty.
We offer an excellent product for businesses and individuals who need cash, quickly, don't want to undergo the intrusive examination of a bank loan and in many instances can't qualify for a bank loan. It is extremely difficult to get a bank loan secured by minerals.
I am oil and gas revenue auditor with over 30 years' experience; a court-recognized testifying expert in oil and gas matters and a significant royalty owner. I understand the incredible value of producing minerals, even in bad times, like now.
I have seen some royalty owners lose their interest because production/pricing dropped and they could not afford the note. A better way to do it would be to get a loan with a term royalty assignment tied to a percentage rate on the amount borrowed. That way and owner would get the cash they need and the loan would be paid back eventually without the risk of losing an owners royalty interest. At the same time the bank/loan company would be able to take the depletion allowance an the amount received.
Ideally you could borrow $10,000 with the total to be paid back at ~20% or $12,000. The loan company will be making $2,000 over an undetermined amount of time. While the loan company is receiving a percentage of the royalty owner's royalties they would be entitled to percentage depletion or maybe even cost depletion. Not sure how it would work on a loan as economic investment. But with percentage depletion alone they will be able to reduce their tax bases by 15%. Let us use $14,000 gross, $1,000 tax and $1,000 expenses. $14,000 times 15% equals $2,100. $14,000 - $1,000 - $1,000 - $2,100 = $9,900 taxable income on $12,000 of actual income.
That would work as a decent investment but I do not know of any company that does it that way. That would be the only way I would get a loan on my royalties.
Brian, what you're talking about was very common until the 1980's. Its called a production payment, and I've seen it satisfied in two variations. In one instance, it specifies that it is satisfied after the grantee (the lender) has received $x in royalties, then the interest reverts to the grantor (mineral owner). In another it specifies the return after x bbls or x mcf of production are received.
In both your scenario, and the production payment one, the lender is risking that they will not achieve a required interest rate -- bear in mind they have investors that expect to be paid a minimum rate on their investment.