Investors needing quick capital to grab what could be an unmissable opportunity often find themselves having to liquidate an investment portfolio in order to sidestep the cumbersome and sometimes drawn-out process of applying for a bank loan. But market conditions may not be particularly conducive to selling, and there is the added disadvantage of capital gains tax (CGT) being triggered when assets are sold.
Our equity-backed finance offering provides an efficient opportunity for our clients to access immediate finance without having to cede fixed property or sell a portfolio. You may need bridge funding or working capital for a particular project, or you may want to make use of our equity-backed finance offering to buy a house instead of taking out a mortgage loan from a bank.
Alternatively, you may have a concentrated single stock position and wish to build a diversified portfolio. For example, a JSE-listed company director may have a need to diversify offshore but could be reluctant to sell the shares of the company of which they are a director because it would trigger a significant CGT event. The transaction would also need to be reported on the Stock Exchange News Service (SENS) and could send the wrong signal to the market.
BENEFITS OF EQUITY-BACKED FINANCE
Fast access to capital. Should you have a short-term cash-flow need, our equity-based finance option will enable you to:
- Take advantage of investment opportunities
- Avoid unnecessary tax implications if you sell shares
- Retain an optimal portfolio mix without having to liquidate your portfolio.
Portfolio diversification. You can leverage your existing portfolio to invest in alternative stocks or offshore investments, providing a natural rand hedge to your South African investment portfolio.
An alternative source of business funding. If you own a business, our equity-backed finance facility allows for more cost-effective funding for:
- Seed capital to start a business – you won’t have to use private equity or venture capital
- Short-term working capital needs – you may need to fund income-enhancing assets.
Peace of mind and portfolio continuity. Your existing mandates remain in place and your assets continue to be managed by a team you know and trust.
The assurance of real-time pricing. You are informed of your risk at all times, and we can react immediately to changes that may affect the value of the assets provided as collateral for the loan.
A highly competitive rate. The rate we offer is linked to the prime interest rate and is competitive with the best in the market. We keep our margins tight as our main focus is to provide a service to you. There are no origination, service or cancellation fees.
Flexible repayment terms. Interest is capitalised from day one, as long as you don’t breach a predetermined level. The loan can be repaid at any time (it is not locked in), without penalties. The interest rate is linked to the prime interest rate.
Easy administration. Our facility is simply structured as an addendum to an existing investment mandate, which can be obtained directly from your wealth manager.
HOW DOES IT WORK?
- You can use your existing equity portfolios as collateral for a loan. The top 100 companies by market capitalisation listed on the JSE, selected listed international investments, unit trusts, exchange-traded funds and bonds qualify as collateral.
- The amount you can borrow depends on the level of diversification, volatility and liquidity of the shares in your equity portfolio. The value of your portfolio is monitored on a daily basis, and as long as your loan – as a percentage of the value of your portfolio – remains below a predetermined level, there are no collateral requirements.
- If your loan (including unserviced interest) exceeds this predetermined level, additional collateral will be needed.
- The predetermined level also depends on the level of diversification, volatility and liquidity of the shares in your equity portfolio.
- The minimum portfolio required to act as collateral is R1 million. There is no requirement to service the loan. Interest is calculated daily using the outstanding balance and capitalised monthly.
- The criteria used to determine the interest rate charged include the size of the portfolio, the duration of the loan and the quality of the collateral offered (for example, the concentration, liquidity and volatility of the instruments in the portfolio).
If you’d like to make use of Sanlam Private Wealth’s equity-backed finance offering, please contact your portfolio manager.
