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What Is Securities-Backed Lending?

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If a business opportunity has recently come your way but you do not have the cash to take advantage of it, you may want to consider securities-backed lending. This is a good solution for those who are asset-rich but cash-poor.

A securities-backed loan can be a good option if a problem arises that requires quick access to funding and you have no way of solving it within your current situation.


What Is Securities-Backed Lending?

Securities-based lending is the practice of using financial instruments, like marketable securities or shares, as loan collateral. In essence, you will be pledging your investment funds, bonds, equities, and other types of securities in exchange for a line of credit from the lender. The lender then uses these securities as collateral. You can make an agreement with the broker for this line of credit at any point within a pre-agreed period.

Specialist brokers can arrange securities-backed lending. Such a loan gives you the ability to access capital or increase your liquidity without needing to sell off your securities.

One of the many benefits associated with this type of lending is that you will have a line of credit available to you when you require it. This can be true whether that’s immediately or at some point in the near future. The underwriting process is very straightforward and quick. Basically, this is a flexible form of lending.

You can use the capital for a variety different reasons. This is why many people turn to securities-based lending. It allows them to quickly raise capital.

How Does This Type of Lending Work?

Securities-backed lending is not actually that different from typical consumer loans in terms of how this product works. The main difference between the two options is that you use securities for your collateral. For other types of lending you might use asset types such as property. Or you might base the loan on your earning power or your income.

Rather than having to sell your shares to generate the capital you need for the opportunity in question, you can enjoy a securities-based loan. When you do, you simply put up your shares for collateral. Then you do not have to sell them.

You can typically get this type of loan for around 50 percent of the value of your shares, depending on the provider you use. Of course, it is imperative to make sure you have the means to pay back the loan according to the terms you have agreed to. Otherwise you risk losing up to half of your securities investment.


Securities-Backed Lending Offers Many Benefits

Securities-based lending can provide you with an efficient and effective way of securing capital without selling your securities. This also means you avoid the tax changes you may be subject to if you were to sell your shares. Finding yourself in the latter position can often mean losing out. This is because you end up selling your shares at a time that is not convenient for you or does not ensure the most profit.

Securities-backed lending is a way to avoid being forced into this position. It also tends to be an efficient, fast, and flexible solution. Moreover, the underwriting process is limited only by the securities you are using as collateral for the loan.