Access to flexible financing options is one of the key drivers for businesses and individuals who must make the best use of investment opportunities or efficiently manage their cash flow. It is, therefore, pivotal to tap into the equity that exists without necessarily selling it. Liquidity can significantly support financial planning and investment strategies if assets are retained.
One such facility is the Lombard Credit Facility, a financing instrument whereby a borrower commits liquid assets of any form—cash, bonds, investments, or any other—to act as collateral for loans. The facility, therefore offers the advantage of maintaining assets and funds for different purposes. It's an unusually invaluable resource for investors wishing to manage liquidity without having to liquidate their portfolios.
How the Lombard Credit Facility Works?
A Lombard Credit Facility works like a mortgage except that the asset, which is liquidated, serves as collateral in lieu of property. These assets could be stocks, bonds, mutual funds, or even property and high-value goods such as motor vehicles or works of art. The borrower retains ownership of the collateralized assets but has instant liquidity to borrow in the form of a loan. The loan amount is basically a percentage of the market value of the pledged assets, thus constituting a secure mechanism for the borrower as well as the lender.
This financing facility enables borrowers to accrue funds without affecting their investment strategies. By acquiring a Lombard credit facility during times of market uncertainty, a borrower can maintain their investment positions without having to sell them at unfavorable prices.
Lombard Credit Facility Features
1. Assets Preservation
A benefit of an asset-backed credit facility is you may keep the ownership of your assets. Rather than liquidating investments, you can have those as collateral for the facility. Your investment strategy would be left largely intact with uninterrupted long-term growth.
2. Flexible Loan Terms
A Lombard loan offers great flexibility, both in terms of the tenure of the loan and its structure. While one week could be as short a tenure for a Lombard loan, it could stretch up to as much as 12 months depending on what the borrower requires. Moreover, loans are available in several major currencies. It also caters to people dealing in foreign investments or operations in other currency markets.
3. Cost-Effective Financing
Compared to other borrowings, the credit facility is very cost-effective. As the loan is secured by quality collateral, the interest rates charged will be relatively lower than those applied on unsecured loans. This helps in borrowing of liquidity without an increase in the borrowing costs.
4. Market Timing Flexibility
A strategic advantage of credit financing is that it allows one to time their entry and exit from volatile markets without feeling pressured to sell. In such markets, selling assets early can result in losses. With a Lombard Credit Facility, you can leave your investments intact but borrow against them. This gives one space to await better market conditions before taking heavy financial decisions.
5. Variety of Collateral Options
A credit financing can accept a wide variety of assets as collateral. Apart from liquid financial assets such as bonds and shares, some lenders can even accept high-value personal assets like real estate, luxury vehicles, or art collections. This implies that borrowers can mix and match the facility to their specific asset profile and borrowing needs.
Conclusion
The Lombard Credit Facility is easy to take advantage of because it allows access to liquidity for both businesses and individual investors without having to sell the assets available. Its flexible loan terms, cost-effective financing, and market-timing advantages enable the borrower to manage financial strategies very efficiently. Whether it's necessary for business growth, potential investment opportunities, or personal needs, there's always an ideal balance in maintaining ownership of assets and securing funds with credit financing.
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