When people think of taking out a loan, they most likely think of borrowing money from a traditional bank or credit union. Those loans have their status, but unknown loans based on the security that the customer confirms the investment can be a flexible and cheap way to get special funds.
There is a misconception that these lines of credit are only used to buy special things like vacation homes and cars. But collateral-based loans, or SBLs, are definitely better it is common among high-level businessmencan be used to meet a wide range of financing needs, from emergency cash to financing a business or a college education.
Professional lending can add value to a client’s life and allows advisors to build deeper relationships with their clients. While there will always be a need for traditional home equity loans secured by a home or business property, here are five things to consider when talking to lenders. Learn about SBLs and the value they can offer as part of a broader economic strategy.
Borrowing with the help of a financial advisor allows for more customization than the many shopping methods that are usually available when looking for a loan from a bank. As a consultant, and perhaps a loyal person, to your customers, you understand their entire financial picture and can advocate for them to get a loan backed by their savings. You have a seat at the table throughout the process, helping to ensure that your client’s best interests are top of mind. Your sales team will appreciate your partnership and involvement, which will deepen their trust and your relationship. Knowing that a consultant is there to guide them through the process makes for a better experience compared to a traditional grant, which is often not specialized in lending money and focusing on FICO score and financial analysis.
Even in a booming environment, an SBL typically offers a lower interest rate than a traditional business loan or mortgage. The lower cost is the result of lower risk to the creditor because the securities can be easily liquidated, if needed. Other factors, such as the size of the loan and the size of the client’s assets, can also affect the interest rate. Advisors can further demonstrate their value to customers by helping them use their referral relationships to get the lowest rate on a loan.
Depending on where the information is held, there may be no fee involved in establishing, maintaining or canceling an SBL, and usually there is no penalties if the customer does not use the credit line. This is not the case for some home or business loans, which may require appraisals or other upfront costs, or annual fees. Finally, using the client’s investments to secure financing can also avoid tax liabilities and transaction costs that can be associated with the sale of assets.
Adaptability and speed
Because there is no formal registration with SBL, borrowers can often access loans faster than conventional loans – often within a few days. Payment terms are flexible and both variable and rate options are offered, and interest-only payment arrangements are common. Advisors can play an important role in helping people choose the best option for their overall financial goals, and can advise them on how to use the loan to increase their situation. total cost. An advisor can, for example, help a client use their SBL as a bridge to pay for their child’s college education, instead of selling their 529 portfolio and losing value. that investment.
Peace of mind
With collateral-based loans, customers can get an interest-only line of credit. SBL can help give clients peace of mind, knowing that if they need access to cash in an emergency, the line of credit is already set up by their advisor to used when an emergency occurs. Consider the risk a client may face if their home is damaged in a natural disaster. SBL can provide much-needed emergency funds for expenses while the client rebuilds, and the line of credit can be paid off once their insurance check is received. .
While SBL offers many advantages over bank loans, this type of loan may not be suitable for everyone, and it is important to clearly understand the six risks of affected. Due to the volatility of investment assets, there is a risk of forced liquidation if the market falls. While everyone has a different tolerance for risk, they should understand that SBL can be sold without notice if it is booked as a collateral for a loan (although, in general, lenders usually provide notice as a matter of performance). In most cases, an SBL is best used for short-term use in situations where a large amount of cash is needed quickly, such as a bridge loan.
A line of credit based on securities can be a useful and important part of a client’s financial plan that allows them to focus on their goals, while feeling confident and prepared for emergencies. However, when it comes to leading your sales team, it’s important to remember that each customer has different needs and preferences. go to the loan. Many may not be familiar with the role that financial advisors can play in helping them navigate the lending environment and find the most effective solution as part of their overall planning strategy. the economy. If your customers aren’t familiar with non-traditional methods of lending, it may be time to discuss their lending options.