Entrusted Loan

A loan with lots of jewels, or sometimes a nice coating of pralines for that subtle extra burst of flavor.

Wait...that’s encrusted loans.

An entrusted loan involves a bank acting as an intermediary for a loan rather than the source of the funds. Some other entity (another company, a government, a non-profit, a rich benefactor) provides the money. The bank just facilitates the transaction.

You own a chain of laundromats/video arcades. You need a loan and convince your brother in law to give it to you. Rather than having him give you a pillowcase full of cash (which was his initial suggestion), you want to go through a bank. So you set up an entrusted loan.

The bank acts as a go-between, handling the paperwork and other details. But the money comes from your brother-in-law. The bank is considered the trustee for the deal, while your brother-in-law would be called the trustor.

Entrusted loans go through a similar process as regular bank loans in terms of the paperwork, but the bank doesn't apply any of its normal credit checks or risk controls. The risk of default falls on the party providing the funds for the loan. If you default, your brother in law is the one who loses out...the bank is off the hook.