The options for securities backed lending is widening – no longer is it a niche area of the finance market only available to those offering finance backed by highly liquid leading stock-exchange securities/shares. Here, we provide you with an insight into the widening of the securities lending market, with advice on the changes and how it is now possible to borrow by offering illiquid securities or those traded on smaller stock exchanges as collateral.
What is securities lending
Securities lending is a fast and flexible way to borrow large sums. It offers a means to borrow significant capital not based on income. Securities backed lending can offer borrowing options beyond the assumed requirement that the loans are only available to fund further securities investment. The reality is that this form of lending is not only more widely accessible with changing collateral acceptance, but it can be used for other purposes, including buying a property without a mortgage, buying assets without bank loans, raising business capital or investing in a new business or pursuing new opportunities or, as has been the case traditionally, investing in securities too.
Securities lending markets now hold opportunities to secure finance against a company’s equity that will be listed in the short to medium-term or a single line of stock borrowing, a means of lending particularly sought after by business owners or employees with substantial share holdings. It is even now possible to obtain crypto finance based on cryptocurrency holdings for any of the purposes already mentioned including property development finance. Owners of privately held company stock or cryptocurrency can now access loans based on these holdings, enabling them to release equity without selling their holdings.
Achieving the best from securities lending
In terms of borrowing amounts, lenders make personalised decisions based on the quantity, quality, and liquidity of stock you hold and your spending plans. For this reason, it can be wise to consider the use of a finance broker to identify the most appropriate lenders and present your case to receive the best possible lending terms. If you decide not to, then it’s essential to put in the work to compare offers to find the most attractive one both for the short and long term.
While portfolio finance is common to be a simple lending and pay-back transaction, there could be opportunities to access a more value-added partnership with lending and perhaps access other valuable benefits. Such benefits can include improving stock liquidity through lenders increasing trading activity, or in some cases, lenders may support dematerialisation of shares that still use physical certificates. Where single stock loans are sought, some lenders have supported the diversification of a portfolio to mitigate the potential risks for families of individuals whose wealth is associated with a single company.
Lenders will generally want to take custody of shares or securities for the loan duration, and deals are usually structured such that you retain equitable rights and voting rights. However, to ensure that you are happy with what the lender can do with the securities, it is essential to assess the impact of all loan conditions carefully. It can be hard to evaluate deals as a slightly lower loan-to-value ratio often offers more favourable terms; thus, negotiating for your individual circumstances is essential.
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