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    3 Replies Latest reply on Jan 13, 2012 11:47 AM by Bridge

    Question about Asset Based Lending...

    gmk560 Newbie

      Hi all.  I am new here, so please be gentle.

       

      I work at a magor US bank as an Investment Advisor.  The firm I work with is making a push into asset based (aka security based) lending.  For those who are not familiar, this is a non purpose loan with liquid assets (such as stocks, bonds, mutual funds, CDs, ect) as collateral.  I am looking for a little advise on who could best denefit from this style of lending.  The rates are very low, 150-250 bps over 30D LIBOR, so for someone with short term liqidity needs, I think it makes sense.  Maybe as a bridge loan to longer term financing, or even an alternative to a traditional mortgage or SBL.  Account stays as an open line of credit, so can be tapped when needed.

       

      Also, what are the negatives... if you are a pro, feel free to poke holes in the idea... I like to know what I'm selling.

       

      Thanks in advance.

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        • Re: Question about Asset Based Lending...
          LUCKIEST Guide

          asset-based lending is any kind of lending secured by an asset.

          The phrase is used to describe lending to business using assets not normally used in other loans.

           

          LUCKIEST

          • Re: Question about Asset Based Lending...
            Vilnius Industries Tracker

            I talked to one of the financial institutions i have accounts with about this topic in 2010.

             

            They said, if i wanted a loan useing , stocks, bonds and/or mutual funds...... 80% of the assets value would be the limit of the loan, they plan on the collateral losing 20% in value, so thats a buffer for the lender, i guess ?

             

            The institution was a brick and mortar, regional bank, in the eastern time zone.

            • Re: Question about Asset Based Lending...
              Bridge Navigator

              Assets don't pay back loans cash flow does - see housing market for example. 

               

              Most small businesses would rather see a cash flow based loan product.

               

              If I am a small busienss owner with liquid assets as you describe, the product seems even more unattrative. Why would I pay a bank interest on a loan against a CS that is probably only making 1% right now.  I would cash the CD and have the cash I need.

               

              Most assets backed loan peoducts I've come across are typically secured by long-term assets that cannot be quickly converetd into cash.