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WHAT IS ASSET BACKED?

Explained in a Nutshell

What it is not

Asset backed does not literally mean having something (assets) on your back.

It's more like assets have your back. But what does that mean?


So...what is it then?

It's security. It describes the fact that the borrower's assets (the things the borrower owns) are placed as collateral in case they can't pay off their loan.

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We are still talking about ISAs, right?

Yes. The term is usually tied to an Innovative Finance ISA.

See, in most cases, your investment will be placed in a bond, which will then become a loan for businesses.

Simply put, you loan to businesses indirectly.


And what exactly happens?

The ISA company makes an agreement with the borrower to use their assets as collateral in case something goes wrong and they can't repay their loan, which is of course, in this case, your money.

Because of that, you, as a lender, have your own personal safety net and the risk of your investment is reduced.

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