Stock Loans and Share Loans – We Explain More About Them In This Article

You are a high net worth individual or financial institution or perhaps a high level company executive. You have a valuable company or personal stock portfolio and don’t want to sell any of it to meet a current cash need. A non-recourse stock loan is a financial tool that you might consider in meeting your cash and liquidity needs.

Let’s look at some of the most common questions we are asked.

What is a stock loan?

A stock loan is what it sounds like, it is a loan against the value of shares of stock you own. We lend based on a portion of the value of the shares of stock that you designate as collateral for the loan. Typically we will lend on up to 80% of the value of the shares, though in some cases it might be a bit lower based on the volatility of the underlying security, or other factors based on our analysis.

We provide a fully non-recourse stock loans in amounts ranging from $250,000 all the way up to $500 million plus. A high percentage of our loans are in the $200 – $300 million range.

We offer a low fixed interest rate of 3%, with terms ranging from 3 to 10 years. Your shares serve as collateral for the loan. They are held in a third-party, fully regulated, fully licensed brokerage account for your safety and ours.

You can use virtually any publicly traded shares of stock to secure the loan. This includes companies traded on major exchanges, penny stocks plus international stocks traded on some exchanges worldwide. Among the stocks and other securities that are eligible for our program include:

·   Penny stocks/emerging growth stocks priced under $1.00 with normal trading volume

·   Non-Marginable stock priced $1.00 to $5.00 with normal trading volume

·   Marginable stock priced $5.00+ with normal trading volume

·   Many ETFs

What does non-recourse mean?

 Non-recourse means that we will not come back to you for additional funds to pay off the loan balance for any reason. In fact you could conceivably walk away from the loan soon after receiving the funds and never make a payment if you chose to do so. The stock loan lender can only use the value of the stock to pay off the loan balance, they cannot come after a borrower’s personal assets.

 What can I use the proceeds for?

 The proceeds can be used for any purpose that you desire. These might include things like:

·     Purchasing a new luxury estate or vacation home

·     Providing working capital for a closely-held business

·     Purchasing a private jet or corporate helicopter

·     Building personal or business cash reserves

·     Investing in a business

·     Real estate ventures

·     Major charitable contributions

These are just a few of the ways you can use the proceeds of your stock loan. In short, we don’t regulate this, how you use the loan proceeds is your decision.

 How does a stock loan impact my personal balance sheet or credit?

 A stock loan does not in any way impact your personal balance sheet or show up on your credit report. In fact there is no disclosure or reporting of this loan to any outside credit monitoring agency.

Let’s say you are looking to make a major purchase, such as a new home, which will entail applying for a loan. Using a stock loan for other cash needs doesn’t add any additional debt to your personal balance sheet or otherwise impact your personal credit when applying for a mortgage on this property.

 Why consider a stock loan?

 There are any number of reasons to consider a stock loan. Here are a few that we’ve encountered and there certainly are a host of others not included here.

·     You hold shares of appreciated stock that you don’t want to liquidate and incur significant capital gains taxes. A stock loan allows you to get the cash you need without having to liquidate your shares and incur these capital gains.

·     You feel that your shares will continue to appreciate in value, and you want to retain them, along with any dividend income the stock generates.

·     You own a significant number of shares in the company and don’t want to cause a disruption in the share price by selling some of them to raise cash.

·     You need cash but don’t want to impact your credit or personal balance sheet.

·     Your credit may be blemished, and you are concerned about paying a high rate of interest on a conventional bank loan.

·     A stock loan can be a good alternative to a margin loan through your broker to obtain cash for other investment opportunities.

From a planning perspective these are just a few scenarios where using a stock loan is a good option to solve your cash needs with minimal disruption to your overall financial structure.

Those professionals who advise high net worth and ultra-high net worth individuals and executives are wise to gain an understanding of how the strategic use of stock loans can serve as a planning tool for their clients. This includes financial advisors, wealth managers, attorneys, head of family offices and tax professionals among others.

 How does the loan process work?

 The application process is pretty simple and straightforward. In fact the entire process is simple and straightforward.

·     Our non-recourse stock loans require no credit checks or financials from the borrower.

·     You tell us your desired loan term, generally between 3 – 10 years.

·     We will analyze the securities you are pledging as collateral for the loan and based on our analysis we will issue you a term sheet detailing the terms of the loan.

·     You and your advisor would then review the terms and sign the documents.

·     We would then issue the final loan agreement for your signature.

·     We assist you in opening the brokerage account where the shares pledged as collateral will be held.

·     We then fund the loan and send you a closing statement and a debt repayment schedule.

·     Once the loan is repaid, we return the pledged securities to you.

 

By on April 6, 2022   /   Blog  
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