Lombard loans are a form of credit that enables you to take out a fixed loan or secure an overdraft against liquid assets like bonds, equities and investment funds. This form of loan is typically used as a tactic to boost financial flexibility, using existing assets to quickly gain access to additional funds.
A Lombard loan allows borrowers to meet short-term needs and stay invested in markets rather than having to sell off their assets or disrupt their long-term financial strategies.
The Lombard loan meaning takes its name from the Italian region of Lombardy. In the Middle Ages, merchants in Lombardy were among the first people to provide loans that catered to customers’ needs, which is one of the first recorded instances of bank lending.
A Lombard loan enables you to borrow using assets as collateral rather than having to sell them. This approach is an effective method for securing quick access to finance, as Lombard finance is backed by your existing assets. Lombard lending is ideal if you have a portfolio of marketable assets and need to boost your cash flow or take advantage of a new investment opportunity.
This makes a Lombard loan a portfolio finance option for you to launch new projects, finalise ongoing ventures and obtain short-term liquidities. A Lombard personal loan can help you finance significant lifestyle purchases, such as freeing up finance to purchase art and real estate or luxury vehicles like jets, supercars and yachts. 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.
Financial flexibility with Lombard loans
Lombard loans can be a good option for anyone that wants to bring flexibility to their financial portfolio. The funds can be used at the borrower’s discretion, and the purpose a Lombard loan is used for can be changed during the term.
For example, portfolio finance flexibility enables you to explore new investment-related opportunities, including:
- Portfolio diversity: Lombard loans also enable you to diversify your investment portfolio. For example, you can use Lombard lending to improve the performance of your portfolio, explore new investment opportunities, and broaden the horizons of your financial activity.
- Generating income: Lombard finance can help you generate additional revenue by increasing exposure to assets that yield value in excess of any costs incurred. As a result, you can amplify returns on your portfolio and generate extra interest or income.
- Short-term trading: Lombard loans allow you to tap into short-term trading without putting any long-term investments at risk.
- Portfolio financial tactics: Lombard loan borrowers with experience and knowledge of trading can use that insight to speculate on market movement. This can help them take advantage of an asset seeing sharp price rises or hedge existing portfolio assets rather than selling them.
- Currency hedging: Lombard loans can help the borrower invest in assets that aren’t in their base currency. They can use foreign exchange or get a loan in the investment currency, which allows them to neutralise currency exposure.
Lombard loans are also well-suited to individual and commercial financial purposes, including:
- Bridge financing: Borrowers can use a Lombard personal loan to access funds that pay off an outstanding short-term liquidity.
- Acquiring assets: A significant acquisition, such as real estate or a luxury car, can be paid for in full or through a down payment funded by Lombard loans.
- Financing properties: Borrowers looking to buy or refinance a property can use Lombard loan proceeds, or a security backed mortgage to fund their purchase.
- Business growth: A Lombard loan also allows business owners to fund an expansion, obtain access to short-term funds or carry out commercial activities, such as bridge loans and payment guarantees.
Lombard loans tend to be quite adaptable, making this securities backed lending approach a flexible option for accessing finance. So Lombard loan rates are a good option for people who want to take advantage of assets that are increasing in value and want the freedom to invest outside of their current holdings.
That said, if assets held as a collateral decrease in value due to changing exchange rates or market volatility, then a borrower will likely need to provide additional collateral or sell them to reduce the Lombard finance they owe.
The interest rates on Lombard loans tend to vary for each lender, but they often start around 0.6%. But most lenders will provide Lombard credit with a range of terms that can last anywhere from one week to 12 months.
The type of Lombard loan rates and terms you get can be tailored based on the assets you hold and your financial situation. It will also be shaped by your level of investment knowledge and experience and the purpose for which you wish to use the Lombard loan.
Lombard loans can expose you to fluctuations in investment values and bankable assets that are used as collateral. These assets are subject to credit, liquidity and market risks, which can all affect their value.
Furthermore, if you struggle to make agreed payments, your lender will have the option to sell the assets used as collateral to recover their losses. And, if assets lose value, you may need to provide additional collateral or sell them to lower the value of your Lombard loan balance.
It’s therefore crucial to consider your financial situation, including possible tax consequences, before taking a Lombard loan to boost your portfolio finance investments. You should also consider your risk profile across all your assets, including any held within financial institutions, and the overall objectives of your financial portfolio.
Hectocorn’s financial experts are on top of ongoing changes in Lombard loans. This is vital to helping you get the best rates and terms that meet your specific financial requirements and investment needs.
Hectocorn’s extensive network of private banks and specialised lenders enables us to negotiate the best deal for your portfolio. We can help you obtain the best terms possible, including lower loan-to-value ratios and cheaper interest rates.