In situations where a borrower’s wealth is not liquid, the loans can be exceptionally useful. The term securities-based lending (SBL) refers to the practice of making loans using securities as collateral such as equities, commercial paper, bonds and hedge funds. Securities-based lending provides ready access to capital that can be used for almost any purpose such as purchasing a property.
Securities-based lending can be an exceptionally useful tool in the mortgage process for high net worth individuals, specifically when those individuals hold an equity position in a single stock position.
Lenders in this space provide funding while using any investments or securities that a borrower might have.
The loans are typically used in a mortgage to provide a chunk of deposit bringing down the overall upfront capital required from the borrower.
Funds can also be used for home renovation or to allow investors to take advantage of time sensitive opportunities.
Almost any security can be pledged to a lender in return for capital, as long as they are unrestricted, unencumbered and can be freely traded, this includes equities (specifically single stocks), mutual funds and fixed income or bonds.
Some investments can be trickier to leverage such as private share holdings – and most lenders won’t accept certificated shares.
However, each case is viewed on its merits as different lenders specialise in select asset areas providing borrower different funding solutions.
For example, Lombard finance is a form of securities-based lending offered by institutions primarily private banks.
Lenders offering Lombard loans will usually only accept investment-grade and liquid assets for security, while niche lenders can provide loans for other forms of assets specifically focusing on single stock positions and more illiquid securities.
Securities-based loans can be accessed on investment portfolios from around £1m, and there is no maximum limit on the size available.
In situations where a borrower’s wealth is not liquid, the loans can be exceptionally useful