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Essential Knowledge for Security-Based Borrowing


November 25, 2022 ( Newswire) When you need funds quickly, securities-backed lending can be a fast, flexible way to borrow significant sums, which can be used for various purposes if you have listed, unlisted, illiquid or soon-to-be-listed holdings across the globe.

Why Security-Based Borrowing?

Here are just some of the reasons high-finance brokers see high-net-worth individuals looking to raise funds using security-backed finance:

  • Settling more expensive borrowing
  • Meeting unexpected expenses
  • Property purchases without a mortgage
  • Buying assets without a bank loan
  • Creating liquidity to pursue opportunities
  • Raising capital to invest in a business
  • Buying further securities

Portfolio financing opens up borrowing of potentially large sums that can be drawn down speedily. Once a niche market with lenders only accepting the most liquid stock exchange-listed collateral against a loan has opened up.

Personalised lending options

A wider range of niche lenders are now prepared to take a more personalised approach to lending, enabling borrowing against smaller listed or illiquid securities. Applications must be structured so that it's easy for the lender to assess risk if you want to achieve the most favourable terms.

Smaller and more niche lenders consider lending against less tradeable securities. Previously, there were few in the market, only set package deals, and no leverage even with significant wealth tied up in the investments.

It is also possible to arrange Pre-IPO loans as a niche offering to secure finance against an equity holding in a company that is planning to list in the short to medium term. Single line of stock loans are possible, and something business owners and employees seek to leverage. In recent years, secured lending has risen, with owners of private businesses seeking to raise capital backed by their company shareholding.

Ultimately, the amount you can borrow will depend on the nature and value of your security, how you plan to spend the capital and your exit strategy. Your deployment plans will generally impact the loan-to-value ratio offered, whereby lower-risk spending leads to better terms.

How a broker can help

Many lenders prefer to deal with broker-assisted applications and are prepared to negotiate more competitive terms and higher LTVs than can be achieved by searching the market independently. The services of a high-finance broker with expertise in securities-based lending can be invaluable to help secure more favourable terms, as they understand what lenders want to see, thus presenting facts in the best way.

Portfolio finance can be an opportunity beyond simply raising and repaying capital. It can offer chances to partner with a lender to add value and achieve specific objectives during the loan term. Lenders can help improve stock liquidity through increased trading, support the dematerialisation of physical certificate shares, or support the diversification of single-stock loans to mitigate risk.

Lenders will often want to take custody of the shares. All terms must be considered and structured to ensure that you can retain equitable and voting rights and that the loan is structured, so the lender only has power over the shares you are happy with.

Portfolio financing can be a complicated process, and negotiating terms in your best interests includes weighing up the sometimes more advantageous terms that come with a slightly lower LTV than simply borrowing the maximum possible, something a broker should be well versed to negotiate and structure for you.

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