Let’s find out what business lending is, with the main characteristics of this practice spread in the financial world. Let’s see how business lending works and why it can be convenient to do so. Finally we will see in detail the risks and the remuneration expected by the banks, to see if it is actually worthwhile to lend their business.
Business Loans: how does it work and why do we do it?
If you own certain financial instruments, in particular the shares of publicly traded companies, a practice that might interest you is the so-called business lending. Many people choose this way to get a certain remuneration. But who are these financial business lent to ? The recipient of the loan is our bank, which in this way obtains its ownership. The reason why our bank might be interested in borrowing our shares is to be sought in particular in the stock exchange rules, which then define the way in which business are sold. For those not particularly interested in the subject, it is good to remember specifically a rule, according to which the actual passage of a title takes place only after three working days. This means that if today you choose to sell one of your shares to another customer, the latter will have the stock purchased only in three working days.
A bearish figure in the financial markets world is that of the bearish, which is defined as the one who obtains a profit from the lowering of the prices of certain shares. To obtain this profit, the rule we have just reported is exploited. In the event that the price of an action is expected to suffer a shortfall soon, then it is possible to sell shares that are not available today, or sell more than they have at their disposal. The important fact is that after three days the shares sold are all on our account and can thus take place already agreed. In the hours that pass between the sale and the actual passage, then the seller can buy the business he has not yet available, and if the price has actually lowered he will be able to obtain the desired profit. The problem is that even the shares bought in this way will be transferred after three working days. So how does the bearer have on his account all the shares sold at the time when the transition must take place? The solution is precisely that of business lending, which we are talking about in this article.
In the case just considered, therefore, the person who has sold his shares needs to “cover” only the period of time that passes between the day when the shares are transferred to the customer who bought them and the one in which the shares purchased from the seller they will be at their disposal. The business loan therefore has an extremely short duration, which will be equal to one or two days. Despite this it is a fundamental practice, without which these bearish operations would be impossible to complete. Considering the passage of business that happens every day, there are many customers looking for business on loan. For this reason, the bank, which obviously receives a certain remuneration for this service, is always interested in having at its disposal as many actions as possible. To do this, the easiest way is to ask for business from their clients, who can then choose to offer them on loan to their bank, which will be owned by the bank for a certain period of time.
Probably for the less experienced this reasoning may be slightly complicated, even if we have tried to simplify the concept as much as possible. In any case, however, for customers interested in lending business it is not essential to know in detail how the sale and transfer of shares takes place. What interests all those who choose to lend business is obviously the aspect of remuneration, which we will see better in the next paragraphs. From the opinions published online by customers who have chosen the path of the loan of financial business what is clear is that it is certainly convenient. Many users point out that after an initial distrust of this practice have now become the usual lenders of business for their bank. A feature that is underlined is that despite the ownership of the shares provided either temporarily of the bank it is still possible to make the sale at any time. This means that the loan of the business will not entail particular problems from the point of view of the management of the shares we own, since these will always be available in our dossier.
Risks and remuneration of the business Loan: expected conditions
When it comes to financial markets and in particular the sale and lending of shares, it is always good to be very cautious. To avoid losing part of your savings it is very important to pay attention to any operation you make, carefully assessing all possible risks. This argument obviously applies also in the case of business lending, and for this reason we want to analyze in detail what the risks are, also based on the opinions we have found online. First of all, it is good to reassure the most suspicious, as the loan of business is a particularly safe operation. The risk of losing one’s titles is minimal and some opinions even define it as non-existent. Although in practice one can speak of non-existent risk, in the financial market world this definition is improper, which is why it is good to consider in detail the concrete risks.
As we have already said, when we choose to lend our business to our bank they become the property of the latter, which can then choose to offer them on loan to another customer who requests them. In this sense, therefore, we who have lent our shares to the bank have a credit to the bank. But what would happen if the bank failed? In this case the loss of the actions we have performed will occur. This is the only risk that you run when you decide to make the business loan, since only in this case the loss of such business occurs. By doing all due exigencies, the bankruptcy of a bank is an extremely rare event, which is why there is talk of minimal and often even non-existent risks. Furthermore, bank failure often is not sudden but anticipated by some signals that can be alarming. In case you have bad omens you can choose to cease the loan and reappropriate your business, which in case of bankruptcy can not be claimed by the creditors of the bank.
Considering the absolutely minimal risks of business lending, there are many customers who choose this practice for remuneration. As with any type of investment, minimum risks correspond to minimum risks. business lending is offered by all major banks, each of which defines its own remuneration. To carry out business lending, the bank must be authorized to manage our shares. To do this you need to access your file and manage it in a few simple clicks, using the Internet Banking services offered by your company. The gains as we have said are minimal, given that it is a few cents for each loan. In the long run and for a large number of business it is still possible to obtain a satisfactory remuneration, especially considering that the risks are practically nil.