Logo
Global

How Lombard Loans can help Wealthy Individuals Access Short-Term Finance whilst Protecting their Assets

Luxury Corporate Building

Lombard loans take their name from the Lombards who conquered the Italian Peninsula between 568 and 774. The wealthy cities in Northern Italy first established the conventions of banking, collectively named Lombardy after these Germanic warriors. Lombard lenders became active throughout Western Europe in the 13th and 14th centuries, emigrating from major merchant centres in Tuscany and beyond. Lombard Street in London was born after it developed into an important financial centre where merchants could exchange currency and conduct business transactions.

 

How do Lombard Loans work?

 

Lombard loans, also known as margin loans, are a form of personal lending for high and ultra-high net-worth individuals, which use marketable securities such as equities, stocks, or bonds as collateral for a loan, just like a house is used as collateral for a mortgage. Some individuals even borrow against high value items such as art, jewellery, or cars.

The lender will agree to lend you a percentage of the value of your assets, and then effectively take custody of these assets for the duration of the loan. If you default on your loan, the lender can sell the pledged assets to recover the outstanding debt.

The interest rates on Lombard loans are not fixed, and can vary depending on several factors, including the lender and the value and type of assets being used as collateral. These loans are typically priced as a spread over a benchmark rate, such as the London Interbank Offered Rate (LIBOR) or the prime rate.

 

What are the benefits of Lombard Loans? 

 

If you’re a high-net-worth individual, you can use a Lombard loan to unlock liquidity from your investment portfolio without the taxation and transaction costs that arise from selling those assets. This means your assets can continue to grow whilst providing you with the immediate cash flow you need.

Lombard loans are flexible and can be used for various purposes, including temporary financing until other funds become available, family emergencies, purchasing property, or to reinvest or diversify your existing portfolio. Entrepreneurs or business owners often use Lombard loans to leverage opportunities or start a business related venture or project.

Lombard loans typically allow borrowers to obtain larger loan amounts than unsecured loans. Banks generally do not conduct in-depth credit assessments for this type of lending, so arranging a Lombard loan can be much quicker than with traditional forms of lending. Additionally, most lenders will have less stringent criteria when it comes to foreign nationals and those with unusually structured income. Lombard loans are also typically offered in a range of different currencies.

Lombard loans can be provided on an interest only or capital repayment basis, depending on the needs of the borrower. A key advantage is that they often have lower interest rates when compared to unsecured loans, due to the added security provided by the collateral.

‘Achieving tax efficiency whilst protecting assets is a balancing act, and providing bespoke and personalised wealth solutions which help our clients achieve optimal financial outcomes is what we do best. A Lombard loan can help you release equity from your investment portfolio without triggering a taxable event such as capital gains tax, and is therefore an important wealth management tool, particularly beneficial if you’re a high-net-worth individual looking to maintain your investment portfolio.’ - Zara Akbar, Head of Securities-based Lending

 

How do I arrange a Lombard Loan?

 

Lombard loans are always individually negotiated. For this reason, it’s prudent to work with a specialist broker with access to a range of lenders, who understands the needs of high-net-worth clients.

At Enness Global, we work with a wide range of specialist lenders, private equity houses and alternative financiers, many of which provide Lombard lending for more complex or unusual assets and other niche areas of the market.

We aim to source the best pricing and terms tailored to your individual circumstances, and will conduct negotiations on your behalf, ensuring a smooth application process.

In summary, Lombard loans offer many benefits for affluent individuals who need access to short term funding, including lower interest rates, greater flexibility, and access to higher loan amounts. To find out more contact Zara Akbar at [email protected].

 

The views and opinions expressed in this piece are those of the author and do not constitute advice or a recommendation. They do not necessarily reflect the official policy or position of Enness and are not intended to indicate any market or industry viewpoints, or those of other industry professionals.