A Lombard Loan refers to a loan whereby securities or other financial instruments are used as collateral for a loan. Similarly to a regular mortgage, which uses property as the security or collateral for the loan, other liquid assets can be used as security for a loan.
A bank will issue you credit in exchange for a pledge of your liquid securities (equities, bonds, investment funds etc.) and you can use the funds at any time during a pre-agreed period. Lombard lending allow you increased liquidity without having to sell your securities.
The borrower retains all the related advantages of the assets (for example any voting rights and dividends for equity holdings) and does not need to reduce their capital or their potential returns to obtain the loan.
Case Study Example
Stocks & Shares Portfolio
