Blog

Why entrepreneurs borrow against their investment portfolio instead of taking a business loan Firenze can lend to individuals, joint borrowers, and crucially for entrepreneurs, both holding companies and Family Investment Companies (FICs), as well as Trusts. Plenty of business owners are sitting on significant wealth in investment portfolios but may be stuck in the event they need to access to liquidity to fund a business need – purchasing a premises, acquisition of another company, or to fund large tax bills – both in the course of business and when exit planning. Liquidating from the portfolio means missing out on potential future growth. Business loans can also prove expensive and slow to execute. A securities-backed lending facility offers a sophisticated third option: borrow against the portfolio itself, keep the underlying investments in place, and only pay interest on what’s drawn. The facility can be used to cover the liquidity need of the individual or business, meaning their business can continue to grow. Here, we outline some examples of how Lombard lending for entrepreneurs has been used successfully previously to achieve their wealth goals, from angel investing, to business expansion, to funding tax bills.   Using a joint investment portfolio for business working capital A mother and son seeking to inject working capital into their listed company on demand. Conventional business loans and their associated high costs were swiftly ruled out. They held a combined £3m investment portfolio across GIAs and ISAs. Firenze were able to set up a joint £1.5m facility secured against their investments. The facility was arranged within three days and ready to draw whenever the pair needed capital for their company. A facility of this size carried an interest rate of Base + 1.95%. Interest was paid on the facility from income, with the full repayment expected to coincide with their exit from the business through a future sale.   Funding private market and angel investments with a portfolio loan A married couple who held an offshore bond portfolio worth £2.2m kept spotting private market and angel investing opportunities but had no liquid funds to act on them. And they didn’t want to over-withdraw from the bond, triggering an income tax charge. Firenze created a joint £250k facility secured against the offshore bond. This meant they could draw down £50k instalments to fund promising opportunities as they arose. Over the course of the year, the client made several cash injections into these opportunities, with some headroom retained for future deals. Interest on the facility was paid through income, with plans to repay the facility once the investments mature.     Expanding a business by borrowing against your investments A successful entrepreneur had her sights set on a new premises but did not have the liquidity to hand for immediate action. She and her husband held a £4m GIA. They did not want to draw down on this as it would trigger a capital gains tax bill and shrink the value of the portfolio that they wanted to preserve for future growth. With Lombard lending, the client instead secured a £250k facility against the GIA. Firenze’s efficient process meant the client had cash in her account within three days. She had the keys to the premises soon after, expanding her business without touching their GIA portfolio, or triggering CGT.   Using Lombard lending to cover a capital gains tax bill after selling a business A successful entrepreneur who had exited a business he had spent his life building was faced with a £500k CGT bill. As the January deadline approached, he sought liquidity solutions to fund it. A bridging loan was in scope, but his adviser offered a more efficient and cheaper alternative. Thanks to a considerable £2m offshore bond portfolio, Firenze could establish a £600k facility by mid-December, well in time for the tax deadline. This included some headroom in case of additional tax liabilities. By January, the client had fulfilled his tax obligations and when the proceeds of the sale finally came through in April, he repaid the loan in full.   Liquidity needs catered for without selling investments As the four examples above have shown, entrepreneurs who have wealth tied up in a portfolio can strategically use that to their advantage to fund business opportunities without selling their investments. In every case, the underlying portfolio remained intact and continued working for them. The facility is arranged quickly and flexed to match the timing of their need. To learn more about Lombard lending for entrepreneurs, get in touch with our team.