How Are Securities Used as Collateral?

Securities (stocks, bonds, ownership interest in an LLC or partnership) can be given to a bank and you can borrow off them just like you could a car or a house. It’s usually a little more complicated than that if it is a publicly traded security. So if you are buying IBM or Apple or one of those companies on the stock exchange, then that’s usually pretty easy. You have a clear right to sell it and it is usually very easy to determine the value of that stock and a bank will usually loan you a percentage of what that value is. If it is a small business, if it’s a business that you own with a group of partners, it is a little more complicated because there’s usually contractual rights with your partners about whether you can sell it and whether you can even get a loan on it.

So, can you get a loan on securities? Absolutley, but you really have to look at what’s the security, what is it worth and what happens if the bank does really have to take it back.

© 2014 Parsonage Vandenack Williams LLC

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