Investing in financial markets on a leveraged basis is often viewed as an unnecessary risk that should be avoided at all costs. Yet in many other situations, leverage is widely accepted. When buying a home, it is generally assumed that a mortgage is used to enable the purchase. When buying a share in a company, we become part owner of a business that is likely to be leveraged if it has borrowed money to finance its operations.
You may ask, is using leverage not inherently risky? We view the use of leverage in financial markets much like driving a car. While it brings many benefits, it should be employed prudently and consciously. Sometimes we can drive a little faster, while at other times circumstances require us to slow down – the objective is always to get home safely.
Leverage can be used in its very basic form to gain financial flexibility and to make use of your capital as efficiently as possible and in a way that provides the best possible outcome. This is why tailor-made Lombard loans, which provide a flexible and efficient solution, can be a useful and powerful tool to support you in attaining your investing, financing, or hedging objectives.
Investment related opportunities and financing requirements can arise at any time – sometimes they are expected, and at other times they come out of the blue, so to speak. For both cases, tailor-made Lombard lending solutions can help increase your financial flexibility, whether you are an individual investor or a corporate entity. Lombard loans are a simple, quick, and convenient way to cover your liquidity needs by borrowing against your bankable assets booked with the bank.
A Lombard loan can be considered a flexible credit facility. The cash received under a Lombard loan can be used for multiple purposes, which you may or may not adjust during the course of the borrowing period. In other words, the bank grants the Lombard loan purely based on the existing portfolio booked with and pledged to the bank, and not based on the intended or actual purpose(s) mentioned below (e.g. to make an investment or to borrow today in view of future incoming cash flows).
While each personal situation varies, a Lombard loan can help you increase your financial flexibility to ensure that you have the cash you need to meet your financial requirements and take advantage of investment-related opportunities.
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Client: UK Client
Loan Amount: £1,300,000
Security Value: £1,857,000
Utilizing a portfolio can be the ideal way to fund a mortgage via a Lombard Loan and even better without having to put any money from your pocket. We will arrange the down-payment via the Lombard Loan (loan against your financial assets) which will be much lower than the mortgage rate. With our capability we can help you get the max loan to value at the best available rate, thanks to the CHF. As a Swiss-based institution we can structure this transaction to help you save on the interest rate with our carry trade formula.
If a client has a property without any mortgage on it, we can help take a loan against the property (cash-out refinance) and utilize the financial assets, making a return.
With a Lombard loan you are exposed to both the greater fluctuations in the value of your investment and the fluctuation in the value of your bankable assets, which are used as the collateral for the Lombard loan, and are themselves subject to market, credit, and liquidity risk (unless you provided cash).
When considering a Lombard loan for your investment portfolio, we advise you to look at your overall financial situation, including any possible tax consequences. Please also consider your risk profile for your total assets, including those held at other financial institutions, as well as your overall investment objectives. In short: ‘To borrow or not to borrow? Borrow only if you can repay!’
Related: What Is A Lombard Loan 2023
In conclusion, Lombard loans can be used as a tool kit to enhance your financial flexibility. By borrowing against your bankable assets, you can get access to additional funds in a simple, quick, and convenient way. You can use these to benefit from investment-related opportunities or to satisfy your financing requirements. In short, you can use the funds at your discretion and even change the purpose during the tenor of the Lombard loan. In the process it is vital to use Lombard loans prudently and consciously in order to successfully attain your investing, financing, or hedging objectives. Have you used a Lombard Loan? If so, share your experience with us.