Securities Backed Lending and Stock Loans

Certain investors, usually those classed as professional investors with considerable wealth and experience, have ready access to loan capital through a practice known as securities backed lending. These loans are normally issued through a private bank or other private financial institution, securities-backed loans and lines of credit can be particularly useful for those engaging in large purchases from time to time, such as buying real estate properties or acquiring private operating companies.

What Is a Securities-Backed Loan?

A securities backed loan is a debt secured against an investor’s portfolio of eligible securities such as stocks and bonds. The borrower deposits securities into a custodian account on which the lender has a lien, and the lender will often make available loan funds ranging from 50% to 95% of the securities’ or investment bonds market value. The exact amount depends upon the specific underlying assets in the portfolio and the level of diversification. For example, a lender might approve more funding against a portfolio of U.S. Treasury notes than a portfolio that holds a single, concentrated stock position.

The Securities Backed Lending Process

When the borrower wishes to access the loan funds, they deposit their securities with a custodian usually decided by the lender.

Step One

The first step is to contact your securities backed lending broker who will contact their list of stock loan providers. To start applying for a stock loan, you would need to complete the stock loan questions requested by the stock loan broker.

Step Two

The stock loan origination team will be in touch to solidify the details and after receiving and reviewing your loan request, one of their experienced managers will reach out to you to confirm your information. The manager will also discuss the logistics of your loan and the next steps.

Step Three

Receive your money promptly in the most convenient way Once the manager has clarified and discussed the logistics of the loan with you, your application and required paperwork will be processed speedily. We will then deliver your money in the most convenient (as indicated by you in your application form) manner.

THERE ARE A NUMBER OF KEY ADVANTAGES TO AN EQUITY RELATED STOCK LOAN

  • Fast transaction & funding
  • Non-recourse lending
  • No personal or Corporate guarantee.
  • No credit reporting in the event of a default
  • Private & confidential
  • Quick closing
  • Reduce the need for traditional bank recourse financing
  • No out-of-pocket expenses or up front fees
  • Low interest rates or Maintenance Fees
  • Fair share pricing using a three or five day average
  • Flexible terms
  • Large transaction amounts accepted

STOCK FUNDING PROCESS

  • Capital Recipient (or “client”) submits inquiry for funding by providing a stock symbol or stock code and target transaction amount.
  • Our lender determines the viability of the transaction, and calculates a maximum transaction amount, relative to the value of the stock and an interest rate, or Maintenance Fee, based on an assessment of both short and long term risks. Squadron issues a term sheet to client to review.
  • Terms are negotiated and finalized.
  • We send contract documents to client for review.
  • Final contract is negotiated and signed.
  • Both parties coordinate a delivery date with their respective brokerage.
  • Transaction is funded.

Stock Loan Questions

  • What is a non-recourse stock loan?

Non-recourse stock loan or bond loan by definition is a loan against the value of a stock whereby the shareholder can borrow against a percentage of the stocks market value, at a low interest rate for the term of the loan. At maturity, the loan can be paid off in full or refinanced (provided no default has occurred) and the Borrower will receive back the same number of shares. Alternatively, if the stock price has fallen below the LTV amount, the borrower can simply walk away from the loan without any further consequences or recourse.

  • How much can I borrow against my stock or bond?

The loan to value ratio (LTV) varies depending on the intrinsic quality of the securities (stock). LTV’s are calculated based on evaluation of the potential risk and future performance associated with the stock. Generally the loan to value ration is 45% – 65%. Each loan’s LTV is evaluated on a case-by-case basis.

  • What types of securities (stocks) can be used?

Stocks and bonds must be freely traded securities. Loans cannot be processed for restricted stock but in some cases they can be just ask your broker.

  • How are the loans funded?

Most Loans are funded on a DVP (Delivery vs. Payment) basis, which varies from market to market. Both parties coordinate a delivery date with their respective brokerage firms or securities houses to fund the loan. The stock is transferred to the Lenders account simultaneously to the loan funds being transferred to the borrowers account.

  • What is the minimum liquidity required for a stock to qualify for a loan?

Liquidity is relative to the size of the block of stock.  Generally speaking the loan will be divided into several tranches, each tranche not to exceed 3-10 days average volume.

  • What are the costs involved with the loan programs?

There are no hidden costs such as application fees, appraisal fees, or any other upfront costs. In the event that a broker or middleman is involved any fees due can paid at the time of funding from the loan proceeds.

  • Are there minimum and maximum loan amounts?

The minimum loan amount is $500,000 USD the maximum is $500 Million USD on any stock loans or bond loans.

  • How long does the loan process take to close?

Loans can close in 5-10 days depending on the speed at which the borrower processes the paperwork.

  • What are the interest charges and how are they paid?

Currently interest rates range from 4% – 12% depending on the liquidity and risk involved and are generally paid quarterly or semi-annually however other payment options are available.

By on March 27, 2021   /   Blog  
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