Stock loans can be an ideal way for investors to quickly receive capital when they are not able or ready to sell their stocks. A great aspect of stock loans is that the investor can use the money for almost anything.
Unlike a car loan or mortgage, where the money you receive goes to pay off one specific asset, money from stock loans is not attached. With that said, you can’t use the money received from stock loans to buy other securities or pay off margin debts.
Stock loans are becoming an increasingly popular option for investors. Morgan Stanley saw their stock loans increase from $36 billion borrowed in 2016 to $40 billion in 2017.
Do you want to know if you’re a good candidate for a stock loan? Read on and we’ll walk you through how they work and who stock loans are perfect for.
How Stock Loans Work
Stock loans work by an investor loaning their stocks to a broker. The broker will in return give money to the investor. Typically, an investor can expect 45-60% of a loan to value (LTV) ratio.
The LTV depends on market conditions, previous stock performance, predicted future performance, and the market sector.
The borrower then makes quarterly interest payments until they pay the loan off.
Stock loans are also non-recourse loans. This means exactly what it sounds like. There is no security needed when accepting a stock loan other than the stock itself.
If you default on your payments, the lender keeps the security which is your stock. There is nothing else that the lender can collect. You can also choose to walk away with the loan proceeds at any time. All you would lose is the stock you pledged to the lender.
Who Are Stock Loans Perfect For?
Any accredited investor who owns eligible stock that trades on NASDAQ, NYSE, or the OTC Markets can qualify for stock loans.
Typically, stock loans range from $50,000 to over $5,000,000. There are also no up-front fees.
Stock loans are great for people who have credit issues because these loans do not affect credit at all. There is no credit report required to accept stock loans.
Anyone looking to get capital quickly will also benefit from stock loans. You can expect to receive funds from your loan within 48 hours after closing.
When compared to margin loans, these securities-backed loans offer much less risk because they typically come with lower interest rates. Also, with margin loans, you can lose more than you originally deposited.
There are risks to stock loans of course.
If the market takes a dive, the lender can liquidate the borrower’s pledged securities to repay the loan.
Using Stock Loans
Like any loan, stock loans come with risks and rewards. But if you are someone who owns eligible securities and is looking to get some capital, stock loans can work for your situation.
Looking to take advantage of stock loans? Contact us today!
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