What is a Broker Loan?
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
