Definition
Lombard Loan
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Lombard loans are basically loans that are secured by deposits.
This means that a lender essentially grants a loan or a credit facility of some sort to a borrower where the latter pledges funds as collateral for the product.
This reduces the risks borne by the lender and enables easier approval of the facility.
Sometimes shares or cash equivalents can be used as alternatives for collateral.
A loan-to-value ratio would also be applied to the collateral value to determine the amount of borrowed funds the borrower would have access to.
For example, a $500,000 deposit with a 70% LTV would mean that the borrower can obtain a credit line of $350,000.
Because real estate loans are typically secured by the property itself, lombard loans are usually used for credit lines or margin accounts for investment and stock trading.
However, it is also not unheard of for Lombard loans to be used for real estate investments.
These types of loans are typically more widespread among private banking clientele. One obvious reason is that they tend to have the excess funds to deposit as collateral.
They are also more familiar with such facilities to increase leverage.
When lombard loans are available to general consumers, the account usually have a minimum requirement of approximately $100,000.
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