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Self-Liquidating Arbitrage Loans 
(Source: Andrew Scully)

You don't have to be rich to get an Arbitrage Loan. You just need to know what to do and where to go. Needless to say, you have probably seen hundreds of offers over the past ten to twenty years - but have you been able to get a Self-Liquidating Loan?  Probably not. Because there's many con artists associated with this investment technique. If it was that easy everybody could arrange one!

An arbitrage loan is different. Its a loan where you profit from the spread between interest rates.  You can get a loan and make money through some arbitrage and hedging. This is absolutely legal under international banking rules.

Some procedures must be respected and you have to know what to do and how. To give you an idea of how an arbitrage loan is made here is an example. Basically, an Arbitrage Loan, looks like this:

  • BORROW from $5.000.000 to $ 20.000.000 for a period from 5 to 10 years;
  • OBTAIN discounted collateral using some of the money you borrowed. This collateral is usually in the form of letters of credit or certificates of deposit; which is pledged as collateral to the lending bank and will repay the principal of the loan, in-full at maturity;
  • INVEST some of the money you borrowed in an income-producing investment that will pay the interest on your loan each year, in arrears. The income stream from this investment is assigned to the lending bank to pay your interest on the loan;
  • PAY all of the broker's commissions and finder's fees from the balance of your loan's proceeds;
    You have borrowed the MONEY; paid for COLLATERAL to re-pay the PRINCIPAL; paid for an income-producing instrument to pay the INTEREST for you; and paid all of the COMMISSIONS and FEES. The amount you have left is yours to keep and do with as you like (depending on the market, to the tune of $200,000 to $1,000,000.). This is called the "ARBITRAGE PROFIT."

All of the above actions take place SIMULTANEOUSLY at the closing of the loan, which is arranged by the " Escrow or law firm " for the Boutique Investment Banker who put the deal together. The boutique investment banker is the most important piece of the puzzle. It gives the bank what it need to feel comfortable with the transaction.  

Since you will obtain the required collateral and income-producing instruments from the loan proceeds, your credit history does not matter. All you need, is a viable project for which the fall-out from the loan will be used.

You don't need to have a high net worth or be a millionaire to get an arbitrage loan. In fact you don't need to invest a dollar of your own money. Your current financial position is unimportant under this plan.

You may wonder if any bank will lend you 5 or 10 million based on a project without a substantial investment from you. Yes, it will since its fully secured by Certificate of deposit or acceptable Letter of Credit and by the assets in your project. But not all banks will accept this.

According to Scully, international banks seldom do any loans less than 5 million. You virtually kill your chances by trying to make an arbitrage loan for a smaller amount than 5 million. You also need a sound project with a business plan. This is of primary importance. 

Recommended further reading:
Loans on a world wide level 
Project finance 
Preparing your business plan 
The executive summary 
Finance procedure
Business Plan information and resources