Whether you need cash fast, would like to bolster your retirement income, or you want to build a financial safety net, gaining access to funds quickly and painlessly is the first step. 

If you’re like most mineral rights owners, you’ve probably thought about ways you can leverage your mineral rights to achieve your financial goals. Traditionally, that means selling your mineral rights to access cash flow. 

However, selling your rights can turn into a lengthy process that may not solve your immediate problem. It could also mean giving up potential future value and sacrificing your family’s legacy. 

With selling your rights off the table, that leaves you with mineral right loans. 

This financing vehicle might sound like a viable option, but there are some risks that you should be aware of as you weigh whether mineral rights loans are the avenue you want to pursue.

Let’s dig in. 

First, What Are Mineral Rights Loans?

Mineral rights loans are a type of financing available to oil and gas owners who are willing to use their mineral rights as collateral. They typically provide a lump sum loan up front that the lender pays back in regular installments over time. 

Taking out a mineral rights loan allows you to retain ownership of your mineral rights while accessing liquidity from your assets. Choosing to take a loan over selling your rights may also have certain tax advantages. 

Sure, it sounds appealing. But mineral rights loans are not without risk and financial trade-offs. 

First, taking out a mineral rights loan puts your ownership at risk if you default on payment. Unfortunately, lending companies have a history of creating highly complicated contracts that can skew in their favor. Not only does this mean potentially contracting legal advice to navigate the loan terms, it means potentially locking yourself in an undesirable situation.

Additionally, leveraging your mineral rights for a loan could mean missing out on potentially larger future earnings if the minerals become more valuable over time. As mineral rights values fluctuate due to various market conditions, taking out a loan during a down market could mean that your loan is worth less than it could be in the future. 

How Do Mineral Rights Loans Differ From Royalty-Based Lending?

It’s worth noting that mineral rights lending is different from royalty-based lending, which is based on future royalty payments generated by your mineral rights. However, these loans come with their own set of risks. 

Most prominently, royalty-based lending is repaid directly from royalty cash payments. This means that a specific dollar amount is removed from your royalty payments, decreasing what you bring in from royalty income month-over-month.  

Thankfully, there are other options available to sale-resistant mineral rights owners. 

The Alternative to Mineral Rights Loans: Meet the Mineral Line of Credit 

Unlike a mineral rights loan, the Mineral Line of Credit (MLOC) unlocks equity tied up in property owners’ mineral interest to provide access to funds through a revolving line of credit. 

MLOC acts just like a Home Equity Line of Credit (HELOC), but instead of tapping into your home equity to borrow funds, MLOC uses your mineral interests as the underlying collateral.

With its competitive interest rate, MLOC offers mineral owners the opportunity to consolidate debt and reduce interest from higher-interest credit cards. As MLOC is a revolving line of credit, it provides a flexible safety net to prepare for the unexpected, and can help supplement retirement income. 

While MLOC and mineral rights loans similarly leverage an owners’ mineral interest as the underlying collateral, MLOC could be better suited to individuals who wish to access funds over a longer period of time or ensure they have access to funds for unpredictable expenses. 

Ultimately, picking which product suits your needs requires careful consideration of not just the type of financing, but also the company you’re working with. 

Learn more about our Mineral Line of Credit and get started on your online application today.