The Billionaire Loophole Nobody Told You About
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Florence, 1397. A banker named Giovanni di Bicci de' Medici opens a modest counting house on a narrow street near the wool markets. His business is unglamorous: currency exchange, deposits, and loans. When a merchant needs cash before a shipment sells or a harvest comes in, Giovanni doesn't ask him to sell what he owns. He asks him to pledge it instead - gold, goods, sometimes fine art - held as security against the loan, and handed back the moment it's repaid. It wasn’t Giovanni's idea. Lenders across the Lombardy region had been doing versions of this for the best part of two centuries already - enough that the practice had earned its own name across Europe: Lombard banking. But Giovanni takes it and builds something extraordinary on top of it. Within two generations, the family he founded - the Medici - are the most powerful bankers in Europe. They finance popes. They bankroll the Renaissance itself. Their crest, three golden balls, becomes the symbol hung outside pawnbrokers' doors for the next six hundred years. The idea underneath all of it never changes: don't sell what you own. Borrow against it instead. Seven hundred years later, on the other side of the world, the same idea is funding space travel. Elon Musk has pledged hundreds of millions of Tesla shares as collateral for personal loans. He's never had to sell a single one to do it. His shareholding remains intact, his upside remains intact, and the cash is put to work funding his numerous ambitious projects. And the same opportunity is available to more down-to-earth entrepreneurs, although only a few have ever even heard of the tool he uses. Often business owners think about wealth in binary terms. You either have the cash, or you don't. If you don't, you sell something - shares, property, the business itself - take the tax hit, and move on. There's a third option. It's the same one Giovanni di Bicci de' Medici was offering Florentine wool merchants in 1397. It's legal, it's cheaper than most people assume, and almost nobody explains it to founders and business owners today. I was reminded of it this week as I met with two entrepreneurs on different sides of the table. The problem, from one sideI had a Zoom call with one of our clients, Richard, early in the week. He’s in serious ‘build mode’ at the moment, growing his company, acquiring assets, putting deals together, and creating value. He’s also managed to accumulate a seven-figure investment portfolio that’s been steadily growing in the background, and he's keen to avoid selling it to fund his many business opportunities. Then a new venture landed on his desk - a genuinely good one, time-sensitive, needing capital within weeks, not months. And Richard had a problem that many entrepreneurs face. He was asset-rich and cash-poor. "I don't want to touch the ISA," he told me. "I've spent a decade building that shelter. The second I sell, I lose it - the tax-free growth, the tax-free income, gone. And for what - to fund something I could pay back in eighteen months?" It's a conversation I have more often than you'd expect with successful business owners. Their wealth is real, but it's tied up - in a portfolio, in property, in a business - and turning it into usable cash usually means dismantling something they spent years carefully building. Sell the shares, trigger the capital gain. Sell the ISA holdings, and lose the tax advantage permanently. Draw down the pension, and HMRC takes its share on the way out. The solution, from the other sideA few days later, I went for a drink with someone who's spent the last two years trying to fix exactly this problem, at scale, for people who've never set foot inside a private bank. David Newman is the founder of a company called Firenze - a name that's no accident, since it's Italian for Florence, and Florence is where this entire idea began. David spent years as a private banker at Barclays and UBS, watching this kind of lending work brilliantly for ultra-wealthy clients and growing increasingly frustrated that it remained locked inside private banking, out of reach for everyone else. So he built a business to change that. Firenze now works with independent wealth managers to offer lending secured against clients' investment portfolios, without the eye-watering fees that private banks demand. Having a cold beer in the London sunshine with David, what struck me most was the scale of what he's seeing - a wave of interest from exactly the kind of people who read this newsletter: entrepreneurs and business owners who are wealthy on paper and sometimes want access to that wealth without unwinding it. Two conversations, a few days apart. One entrepreneur with the problem. One entrepreneur building the solution. The other cost of sellingThere's a second reason to think twice before selling, and it’s got nothing to do with market timing. If you're a higher-rate taxpayer selling shares or other assets outside a wrapper like an ISA, you're currently looking at Capital Gains Tax of 24% on the gain - so the cost of accessing your own money is nearly a quarter of your gains. And the direction of travel doesn't look like it's easing. Ahead of the next budget, there's already speculation about further reforms to how gains and assets are taxed, with reports suggesting the government is looking closely at wealth and investment assets - particularly when they're sold - as a source of revenue. Nobody can say with certainty where CGT goes from here. But "wait and see" isn't really a strategy, and it's one that costs you nothing to plan around. Lombard lending avoids crystallising a gain, paying CGT, or losing the tax-exempt status already established. It also allows the portfolio to continue growing steadily in the background. How it actually worksStrip away the history and the billionaires, and the mechanics are quite simple. It's called Lombard lending. You borrow against your existing investment portfolio - shares, funds, and in some cases even assets held within an ISA - typically at somewhere between 1% and 3% above bank base rate, considerably cheaper than most unsecured borrowing. Your portfolio stays invested and continues to grow. Your tax wrappers stay intact. And you get the liquidity you need, when you need it, without a forced sale. For Richard, it means funding his new venture within the timeframe it demands, without cracking open the ISA he'd spent a decade building. His portfolio would keep compounding in the background while the loan did its job. When the venture pays out, as he expects it will, he'll repay the facility, and the ISA will never have known the difference. It won't be right for everyone, and it isn't free money - it's still a loan, still secured against a real asset, and there are risks that need to be fully understood and managed. The real lessonMost founders spend their whole careers building assets. Far fewer spend any time thinking about how to fully use them. Giovanni di Bicci de' Medici didn't leave that lever unpulled in 1397. Elon Musk doesn't leave it unpulled today, and neither do some of the smartest entrepreneurs around. The idea connecting them is seven hundred years old, and it's still the same idea. So here's my question for you this week: what's sitting on your balance sheet right now, fully paid for and fully yours, that's only doing one job - when it could be doing two? Until next time, Alan PS - If you'd like to talk through whether a facility like this makes sense for your own situation, hit reply or schedule a call, and we'll find the time. PPS - I also had dinner this week with a past podcast guest, Graeme Godfrey - a successfully exited entrepreneur himself, he now coaches business owners and has some great insights and stories. The episode was truly one of the most impactful that I ever recorded - if you missed it, you can check it out here - Youtube |