Your cart is currently empty!
Buying property with shares or collateral isn’t as difficult as we make it out to be. Traditionally, we had to save for deposit, bond and transfer costs. You would also be liable for capital gains tax (CGT) if you dispose of existing assets. Enter asset-based lending. It allows you to use your investment portfolio as collateral for your property loan. You can use your stock portfolio or even crypto as collateral!
Multiple institutions offer asset-based lending, including ABSA, Standard Bank, Nedbank, FNB and EasyEquities.
How to Use Assets as Collateral
Using assets as collateral is like pawning your belongings. The assets are security for the loan. This method allows you to use your investments without liquidating them. However, it comes with certain risks. Banks set strict criteria. Liquidating them will incur costs such as spread, CGT and withdrawal fees.
Avoiding these costs might make sense, especially for large transactions. For example, Elon Musk used his Tesla shares to secure the purchase of Twitter (now known as X). He later sold some of his shares and joined with investors to buy the social media channel.
Remember that if you default on your loan, the institution will sell your collateral to recoup the money.
What can I Use For An Asset Based Loan?
You can use your stock portfolio (Bonds, funds, ETFs and shares). You can even use cryptocurrency! The interest rate supplied for the loan differs depending on the type of asset and how diversified it is. For example, a stock portfolio invested in broad international ETFs and multiple companies might give you favourable terms.
You can also use your crypto portfolio as security. Banks tend to give better rates for asset-based lending, however, crypto is seen as high risk. There are companies specialising in crypto lending such as Easy Loans from Alt Coin Trader (FSP 53614).
Bank Criteria For Collateral Loans
Similar to home loans, banks have their own checklists for accepting assets as collateral. Banks do give some idea of their minimum asset value and loan to value (LTV):
| Bank | Minimum Asset Value | Acceptable Asset Types | Loan-to-Value Ratio (LTV) | Documentation Required |
| ABSA | Assets must meet a minimum value requirement, typically around R500,000. | Shares, bonds, and mutual funds are generally accepted. | Up to 70% of the asset value can be used as collateral. | Proof of ownership, asset valuation, and income verification. |
| Standard bank | Minimum value of assets should be R1,000,000. | Shares, bonds, unit trusts, and other liquid investments | Up to 75% of the asset value can be used as collateral. | Detailed portfolio statement, proof of income, and asset valuation. |
| Nedbank | Assets must be valued at a minimum of R750,000. | Shares, bonds, and other marketable securities. | Up to 65% of the asset value can be used as collateral. | Comprehensive asset statement, income proof, and valuation report. |
| FNB | Minimum asset value required is R800,000. | Shares, bonds, and mutual funds. | Up to 70% of the asset value can be used as collateral. | Asset ownership proof, detailed valuation, and income verification. |
Who else offers loans against assets?
Banks aren’t the only ones offering loans against collateral. Other companies include:
- Sanlam
- EasyEquities (EasyCredit)
- Easy Loans from Alt Coin Trader
How the banks mitigate their risk
Here’s the thing: while banks are happy to accept your assets, they also want to ensure they don’t get burned. The higher the risk, the higher the interest rate for the loan. That’s where risk mitigation strategies come in. Some ways banks protect themselves include:
- Margin requirements: You’ll need to maintain a certain difference between the value of your collateral and the loan amount.
- Periodic reassessments: They may check in on your portfolio to make sure it’s still in a healthy position.
- Loan-to-Value (LTV) ratio: The LTV ratio will dictate how much of your portfolio the bank is willing to lend against.
- Mandatory diversification: No one wants to see a portfolio that’s too heavy in one asset. The bank will often require you to diversify across sectors or asset types.
How do I apply for a loan against assets?
Many companies offer online assessments and approvals. EasyEquities (EasyCredit) and Easy Loans from Alt Coin Trader are two such companies. An evaluation based on your assets are done. You will also be subject to an affordability (credit) check.
For the banks, you will require investment portfolio statements, proof of ownership and your tax returns and personal financial statements. The barrier of entry is fairly high for banks. Therefore, private clients would often get preference.
Why use asset based lending?
Using your investment portfolio to secure a loan comes with some pretty neat benefits. You don’t need to sell your assets – You keep them and the capital growth they accumulate. Depending on the criteria, you might get a good loan amount. For example, Altcoin is offering asset loans for 7.95% pa, which is well below prime +3%! Because the bank already has collateral, you might get approved faster than with a typical loan. And as you’re not using your cash reserves, you can keep your emergency fund!
It is also less risky for the bank. If something goes wrong, they’ve got your assets to back them up. It is also more attractive to high-net-worth clients. These loans appeal to wealthier clients, which helps banks grow their portfolios (Think Elon).
Potential Risks of asset based lending
If the market crashes, your portfolio’s value could drop. The bank may ask for more collateral or even force you to liquidate some assets. This is especially tricky if your investments are volatile. It’s important to always be prepared for these market fluctuations – have an emergency fund!
Remember that this loan is a legal contract. Never sign anything you don’t understand.
Conclusion
You can get that dream home without selling off your hard-earned assets. And not selling means you will still benefit from their rise in value once the loan is repaid. And not paying capital gains tax when disposing of the assets will help too!
If you want to get a collateralised loan, you need to maintain a good credit score. Diversify your portfolio and keep tabs on it.
Do take care – loans can ruin your finances.
Happy investing!
