About Securities-Based Lending:
- It is the practice of raising a loan by offering your existing investments in stocks/mutual funds/ Exchange-traded funds (ETFs) as collaterals.
- These kinds of loans are generally offered to high-net-worth individuals by large financial institutions and private banks.
- The loan amount depends on the security the borrower is offering.
- The loan can then be used for making purchases like real estate or personal items.
- This loan cannot be used for making further security purchases.
- Due to the inherent volatility in the nature of stocks/mutual funds, the risk of forced liquidation tends to be very high for these loans.
- Borrowers benefit from easy access to capital, lower interest rates, and greater repayment flexibility and also avoid having to sell their securities.
