Lombard Lending for Private and Public Assets

Lombard lending offers a unique way for clients such as investors, especially high-net-worth individuals (HNWIs), to raise capital by leveraging their investments in various assets. Whether you're looking to secure capital against private stocks, public shares, or even private and public funds, Lombard lending allows you to unlock liquidity without the need to sell your assets and thus forego upside in the future.

This method of financing is becoming increasingly notorious for a multitude of reasons. For example, it offers flexibility, higher loan-to-value (LTV) ratios and the ability to keep your assets intact for potential future growth.

Best Public Assets to Use as Collateral

When it comes to stock lending, the best public assets to use as collateral in the digital lending space include single stocks and portfolios. However, not all stocks are created equal. Understanding which assets are more attractive to lenders is key to securing favourable terms.

Key Metrics for Stock Lending Success

At present, the best investments are predicted on three metrics:

• Brand Strength: Lenders prefer stocks from companies with strong brand recognition. Stocks from tech giants such as Apple, Microsoft, Nvidia, Meta and Amazon are highly sought-after
• Daily Trading Value: Stocks with high daily trading volumes are considered more liquid and attractive to lenders
• Share Price Volatility: Stocks that demonstrate consistent price volatility are often favoured because they offer better trading opportunities

If your investment scores strongly in all three areas, the chances of securing more favourable rates, term length and LTV are higher. For high-performing stocks, loan terms offer up to 85% LTV, with interest rates ranging from 0.5% to 1.25% above the base rate.

General terms for these assets vary depending on the size of portfolio holdings, but in general, you are looking between 0.5-1.25% above base rate, loan to value of up to 85% and in some cases, indefinite term lengths with no early repayment penalties. However, not all well-known companies can secure such favourable rates. Surprisingly, companies like Tesla, Microstrategy, ASML & Intel are companies that might make it harder for clients to find favourable terms. Despite this, terms that can be secured for this asset class are still strong, and you can sometimes secure up to 70% LTV, with margins from 0.5-1.25% over the base rate. Term lengths, again, can be evergreen, and credit is more akin to an overdraft/line of credit rather than a fixed/rigid product. Oftentimes, each lender will take a view on each stock based on their own personal investment strategy and will price accordingly. Therefore, due to the limitless lending options out there, it is good to seek professional advice from people who can explore the whole market to find lenders who align with your needs.

The Mysterious World of PRE-IPO Lending

The Pre-PIO lending market is home to a vast array of solutions and unique opportunities to help clients release liquidity from often restricted stocks without having to sell them on the secondary market or back to the business, never to be seen again. Companies such as Revolut, Monzo, Space X, Databricks, Uber, Carta, Discord, and Airbnb, to name a few, are in a great position to take advantage of pre-IPO lending.

To start, lenders will conduct due diligence on the company, analysing financials and engaging with insiders to get comfortable with one thing: when the company will IPO. The lending options available for this type of funding again vary depending on the company in question that is being collateralised. However, the structure is always the same. First, it typically involves the lender charging an interest rate (can be as low as 4%), which will roll up and be paid on maturity (this is not compounding). Additionally, lenders often charge an equity upside payment on the back end, which will be a percentage of the value of the collateral payable if you sell your stock. This fee can be as low as 1%, providing an attractive balance of capital access and future growth potential.

Small Cap Companies and Lending Opportunities

Small-cap public businesses, typically ranging in size from $50 million to $800 million, are another viable option for securing funding, but with more specific restrictions. Lenders often set conditions on the stock, such as clauses prohibiting owners from transferring or lending against their assets. Therefore, when considering this type of transaction, you must consider the restrictions/conditions attached to the stock. Many lenders also require a daily trading volume of at least 100,000 shares to ensure sufficient liquidity in the case of default. Lastly, decision-makers are uniquely positioned to capitalise on their ownership in companies listed on the smaller exchanges. It's paramount to choose a trustworthy lender who will carefully manage the custody of your shares. Small-cap lending terms are usually based on a case-by-case basis by the lender's assessment. Typical rates are 2% to 3% over the base rate, and LTV ratios are up to 50% on 2–5-year terms.

Leveraging Private Shares for Funding

There is a fine line between securities-backed financing and corporate financing when it comes to private share lending. Oftentimes, suppose you own a small-cap company valued between $50m to $500m. In that case, there are often very few solutions, as traditional mainstream lenders usually deem your company too small. However, this doesn't mean financing options are unavailable. In the case of most entrepreneurs lending against their shareholding, the use of funds is very important.

Key considerations include:

• Use of funds: If funds are used for commercial purposes (e.g. reinvesting in the business or a new commercial venture), lenders are more likely to approve the loan, as regulations are much less stringent. However, personal use of funds may raise regulatory concerns.
• Position in the company: You must be a decision-maker with access to the company's finances for lenders to have a good source of information to conduct their research and evaluate the investment
• Personal guarantees: In some cases, lenders may require a personal guarantee (PG), where they either take control of the company's assets or the private assets of the ultimate beneficial owner (UBO)

Lombard lending can give high-net-worth individuals unique ways to leverage their investments and gain liquidity without selling assets. Whether you want to raise capital against public stocks, pre-IPO shares, or small-cap companies, understanding the dynamics of stock lending is essential.

If you're considering Lombard lending or any other form of asset-backed financing, seeking professional advice to navigate the complexities is essential. With the proper guidance, Lombard lending can help you maximise your portfolio's potential while maintaining long-term asset appreciation.

Contact our experts at Enness Global to explore how Lombard lending can work for you.