What Are Securities Based Loans? And Why Do They Matter?
Securities Based Loans are an excellent source of funds for someone who holds publicly traded stocks.
Securities-based lending is generally going to involve a revolving line of credit. So this uses your eligible investment portfolio as collateral.
This funding option permits you to access funds without immediately liquidating your portfolio.
In turn, this gives you the ability to access liquidity. And you can do so while maintaining your portfolio’s current exposure to the market.
You will continue to receive the benefit of any dividends, interest or capital appreciation that may accrue in the account.
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Securities Financing—Make it Work for You
So, it’s entirely possible that you are sitting on some stocks and bonds. You have have received them as a part of your perks or even your retirement package with an employer. Or maybe a relative gave them to you in their will. Another option is, you’re the one who bought them. But however you got them, you get a statement every month and then … what do you do?
For a lot of people, the answer is: nothing.
So, why not put those assets to work for you?
Great Benefits to Securities Financing
Some of the other main benefits of securities financing include the following.
- Interest rates tend to range from 2.5% to 4.5%, fixed, interest only payments.
- There are loan periods for up to ten years
- These loans are NON-recourse, and not recorded
- Borrower retains full beneficial interest (dividends, appreciation, etc.)
- You can use these funds for virtually any purpose, anywhere in the world
- Borrower’s nationality and residence can be anywhere in the world
The Details
This is a non-recourse, non-recorded loan and the lender cannot come after you personally. Also, they can’t report you to the credit bureaus in case of non-payment.
But if you default, you get to keep the money. Yet the lender gets to keep the stock as the sole remedy. This is, of course, a problem if you are close to retirement—and you were planning on leaning on your securities.
At the end of the loan period, the borrower will get back shares from the lender. Yet these are the same number of shares first pledged as collateral. So this automatically includes any appreciation as well.
Securities Based Loans: The Upshot
So, this kind of financing is a great choice for many business owners. It works especially well for foreign nationals. Also, it can even work for borrowers with limited or undocumented income. Plus, there is no credit check. So you qualify even with challenged credit.
