Are there special considerations when leasehold improvements are offered as collateral?
Leasehold improvements generally have minimal value as collateral since the law provides that improvements which are substantially attached to real property (land and building) become part of the real property, and are, therefore, the property of the landlord. When leasehold improvements are offered as collateral, you must consider other factors which may help to offset the lower valuation of this type of collateral. These factors include: (1) The history of the business. Is it well established with proven management? (2) Other collateral that may be available to secure the loan. Are tangible assets, other than working capital assets, available for collateral? (3) The strength of the personal guaranties. Can the personal guaranties be secured with liens on personal assets? (4) The term of the lease on the project property. Can the lease on the property be extended (including options) to at least twice the term of the debenture? (5) The willingness of the landlord to waive its rights to
