A Lombard loan is a strategic financial tool that can provide you with flexibility and the potential for asset preservation
In the realm of modern finance, diverse instruments and strategies are used to secure loans and access capital. One method becoming more and more prominent is Lombard lending. This innovative financial approach offers individuals and businesses a flexible and efficient way to leverage their assets to obtain much-needed funds.
What is a Lombard loan?
A Lombard loan is a type of secured loan where you as the borrower pledge valuable assets, typically financial securities or high-value items such as art, jewellery, or even vintage cars, as collateral in exchange for a loan. The most common Lombard is cash or stocks.
The core mechanism of Lombard lending is straightforward. You as the borrower, provide assets as collateral, and the lender offers you a loan amount based on the assessed value of your assets. The lender will then take custody of your assets for the duration of the loan, and similar to a standard mortgage, if you default on your loan, the lender can sell the pledged assets to recover the outstanding debt.
What are the main benefits of a Lombard loan?
Streamlined Application Process – Lombard loans are based on the value of your assets rather than your individual circumstances. Making the application process far more straightforward, as underwriting isn’t required.
Access Capital On-Demand – Lombard lending functions as a drawdown facility, allowing you to access funds when needed, similar to an offset mortgage.
Versatile Terms – Lombard loans typically offer you more flexibility in terms of loan duration and repayment, making it adaptable to a variety of financial situations.
Retained Asset Ownership – You can keep ownership of your assets, which is particularly beneficial if you are a high-net-worth individual looking to maintain your investment portfolios.
Tax Efficient – Depending on your local tax laws and regulations, Lombard loans may offer you potential tax advantages.
Flexible Use of Funds – Unlike traditional mortgages, or personal loans, Lombard lending allows funds to be used for a broader range of financial needs, including paying tax bills.
What can a Lombard loan be used for?
If you are a high-net-worth individual, you can use Lombard loans to unlock liquidity from your investment portfolios without triggering a taxable event such as capital gains from the sale of such assets allowing your assets to continue to grow.
As a business owner, you can use Lombard lending to secure working capital, fund expansion projects, and seize investment opportunities quickly, rather than waiting for traditional loan approvals.
For property developers and investors, you can leverage your assets to finance property acquisitions, development projects, or renovations, by using your cash and investment portfolios as collateral.
Risks and Considerations
The primary risk in Lombard lending is related to the performance of the assets used as collateral. If the assets’ value declines significantly, you could be forced to sell your assets to repay the loan.
The level of risk can vary depending on the type of assets used as collateral. A Lombard loan secured by a diversified portfolio is generally lower risk than one secured by a single stock, which carries more significant risks due to its dependence on the performance of that specific asset.
Lombard lending is a strategic financial tool that can provide flexibility and the potential for asset preservation, making it a compelling choice for a wide range of financial needs. However, borrowers should approach it with a clear understanding of both its advantages and associated risks. Careful consideration of asset selection, loan terms, and financial management is essential to make the most of this financial strategy.
For more information or support arranging Lombard lending, please do not hesitate to contact our specialist team of advisers.
Please note: this information is for general informational purposes only and does not constitute financial advice. Prospective borrowers should thoroughly review all documentation and consult with our specialist advisers to fully understand the implications and risks associated with Lombard lending before making any decisions.