We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Broker Loan?

Nicole Madison
By
Updated: May 16, 2024
Views: 14,279
Share

A broker loan is usually described as a loan granted to a broker or brokerage firm by a bank. This money is typically lent for the purpose of financing margin accounts, building inventories of stocks, or funding the underwriting of securities offered for the first time. A broker loan may be extended for various other reasons as well.

Often, an individual investor will seek a loan from an investment broker for the purpose of funding the purchase of securities. To purchase securities in this manner, an investor must have a margin account. This margin account allows him or her to obtain securities without providing money at the time of purchase. In order to fund margin accounts for investment clients, a brokerage firm may seek a broker loan from a banking institution.

A broker may also seek a broker loan for the purpose of underwriting new issues. A new issue is a security that is being offered to the public for the very first time. To qualify as a new issue, a security must meet specific Securities and Exchange Commission (SEC) requirements.

Broker loans are also granted to fund the purchase of securities by a brokerage firm itself. Often, brokers choose to purchase securities in order to build an inventory. Additionally, this type of loan may be used to fund the acquisition of desired assets for the firm's own portfolio.

The interest rate charged by the bank for lending money to a broker is called the broker loan rate. This rate is charged regardless of the reason for obtaining the loan. The interest rate on broker loans is about one point higher than short-term interest rates.

A broker loan is callable with just 24-hour notice. This means the loan is payable on demand, with only one day's notice. Since broker loans are callable, the broker loan rate is frequently referred to as the call money rate.

Sometimes the term broker loan is used to refer to a loan extended by a broker to an investor. This type of broker loan is used to fund the borrower's securities purchase. An investor may be able to borrow as much as 50 percent of the market value of the securities in question. This type of loan is completely different from those made to brokers and is not charged the same broker loan or call money rate.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Nicole Madison
By Nicole Madison
Nicole Madison's love for learning inspires her work as a SmartCapitalMind writer, where she focuses on topics like homeschooling, parenting, health, science, and business. Her passion for knowledge is evident in the well-researched and informative articles she authors. As a mother of four, Nicole balances work with quality family time activities such as reading, camping, and beach trips.
Discussion Comments
Nicole Madison
Nicole Madison
Nicole Madison's love for learning inspires her work as a SmartCapitalMind writer, where she focuses on topics like...
Learn more
Share
https://www.smartcapitalmind.com/what-is-a-broker-loan.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.