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Q: My family has owned a restaurant/tavern in Montgomery County Pennsylvania for over seven years. A friend recently told me that my restaurant liquor license is worth over two hundred thousand dollars ($200,000.00). I am thinking about taking out a bank loan to upgrade my kitchen equipment and I want to know if can use my liquor license as collateral for the loan.

A: You friend is correct about the value of your liquor license in Montgomery County. To answer your question about whether you can use your liquor license as collateral for the bank loan, yes you can use your license for collateral for the loan.

A liquor license by law has a dual nature in that between the PLCB and the licensee it is a privilege, while between the licensee and third parties, (e.g. banks or landlords) it is a property right, and can be pledged as collateral for a loan.

The Board, however, will not recognize any third party’s liens or security interests recorded against the license. The Board only recognizes the licensee named on the license as having an interest in the license. Should a default occur in the loan, the bank would have to provide the PLCB with a Court Order; or copies of the Writ of Execution with a Bill of Sale issued by the Sheriff who conducted a sheriff’s sale of the license; or an attorney’s affidavit as to a third party loan agreement in order for the bank to legally gain control of the license.

This means that in the event of a default, a bank may foreclose on your loan documents, obtain a judgment, and proceed to hold a public sheriff’s sale by which the bank will obtain the rights to your license. Thereafter the bank will notify the PLCB of the sheriff’s sale by providing the necessary sheriff sale documents.

You should consult with your attorney before signing any loan documents.