A securities lender agrees to borrow investments in exchange for collateral. This market contributed over $2 trillion in 2017 to global lending. The securities market is usually reserved for big traders.
Though…
Few realize the model offers stock loans using their securities and investments.
We’ve collected five questions to ensure the agreement are mutually beneficial. How the lenders respond will pose less unexpected risks when lending securities.
Ask Your Securities Lender These Questions
Stock loans provide funding without the need to liquidate investments and assets. The business exchanges stock for a loan determined by the securities lending company.
Stock loans allow the business to flourish during economic downturns. Or, when in need of capital injection to expand operations. It’s like when homeowners refinance their home.
Deciding to take on a stock loan should pose the following questions:
Q1: What securities can I lend?
A securities lender mitigates risk by offering loans to those owning non-marginal securities. Non-marginal securities are 100% owned and funded by the investor.
These may include:
- Penny stocks
- Initial public offerings (IPOs)
- Over-the-counter bulletin board stocks
… or any others not having been purchased on a margin by a brokerage.
Q2: Are there credit checks and reporting?
A securities lender providing loans are direct or indirect lenders. Direct lenders use in-house underwriters to determine the safety of the transaction. A credit check is not necessary when working with most direct lenders.
This proves beneficial for reasons of confidentiality. No information displays to the public. This prevents uneasiness with the business investors.
Q3: What is the collateral?
The collateral in traditional securities lending is cash and securities. However, stock loans use the non-marginal securities as collateral.
This presents two usual outcomes for the borrower:
- Repay the loan and have the securities returned
- Walk away and forfeit the securities
The loan terms dictate the repayment time frame (often 12 – 36 months) though varies by client needs.
Q4: What will I need to provide?
Each securities lender process loan inquiries using in-house metrics. Yet, most use a “Competitive Loan to Value” ratio for risk assessment. This is the stock loan amount divided by the securities value.
Other factors may include:
- Intended use of capital
- Interest rates
- Market performance
Risk levels based on business volatility and holdings also factor in securities underwriting.
Q5: When is my funding available?
Dire needs for capital injection is the attraction to stock loan options. The average turnaround, after closing, is typically 24-48 hours. Ask how the securities lender process the funding for a clearer time frame.
A Simpler Solution to Lending
What if the business faces tough financial positions to stay afloat? You’ve weighed the options and bank loans aren’t quick enough. You refused to liquidate your assets.
Stock Loans Solutions provides a non-recourse, securities-backed lending solution.
You transfer stock to us, agree to payments, and we’ll provide a loan against the value of your stock. There are no credit checks, funding is fast, and rates are flexible.
Talk with one of our loan specialists (1-866-446-1009) or contact us to learn more.
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