STOCK LOAN WEBSITE FAQ’S
What is a non-recourse stock loan?
A stock loan is a non-recourse loan that allows the borrower to borrow typically and in many cases up to 80% of the value of the stock. Interest rates for these loans are usually above prime interest rates and, at the end of the loan term, borrowers have the options to pay off the loan and release the stock, refinance, or walk away from the loan.
What securities are eligible for a stock loan?
Most publicly traded securities with a minimum of $100,000 in daily trading volume are eligible. Most foreign stocks and bonds are also eligible.
What are my personal liabilities with this type of loan?
With a non-recourse loan, you are not personally liable if the loan goes into default. If the loan is not repaid, only the collateral, the stock, is forfeited to satisfy the debt. Your personal assets and credit worthiness will not be affected whatsoever.
Is the loan reported to the credit bureaus or credit reporting services?
Absolutely not. The loan is not recorded publicly and credit bureaus will not be notified if the loan goes into default.
Are foreign securities allowed to be used as collateral in a stock loan?
Yes, we provide loans against many foreign public securities. Inquire with us for more information on all eligible securities.
What is the Loan to Value (LTV) percentages for stock loans?
The LTVs for stock loans are dependent on the quality of the security being used as collateral. Large cap stocks (i.e. Blue Chips) can get up to 80% LTV while a small cap, or pink sheet (penny stocks) securities, will have a much lower LTV.
How are the securities assessed?
We look at a variety of factors when determining the quality of the security. The quality of the security affects the interest rate, the term, and the loan to value ratio. The LTV is based on trading volume, share price, and low volatility.
The major factors in evaluating a stock to be used as collateral are the exchange, volatility, share price, liquidity, trends, filings, and trading volume.
What interest rates are available for a stock loan?
Interest rates start at 3% and are determined based on the quality and stability of the stock used as collateral. Average is 4%-5% for most stock loans.
Is a credit report required?
No, since the stock itself is used as collateral, there is no need to receive a credit report from the credit bureaus.
Is household income and employment verified?
No, our application will not ask for your employment or income information.
How long does the loan process take to close?
Our loan process can be completed in just a few days. Once the loan application is returned from the borrower, we will typically return a term sheet within 24-72 hours.
Is there a restriction on the use of the cash loan proceeds?
YNo, it is your money to spend as you deem fit.
If the stock issues a dividend during the loan, will I get it?
Yes, the dividends belong to you during the term of the stock loan.
What happens if I default on the loan? What happens if I fail to make my payments?
As this is a non-recourse loan, the borrower has no personal liability. You are free to walk away.
What stocks are NOT eligible for a loan?
Private company stock, closely held stock, and restricted stocks unfortunately are not eligible. There must be trading volume and liquidity.
Are there risks involved with stock loans?
There are risks involved in any type of security transaction. Stock loans are placed in minimal risk categories due to stock forfeiture being the only recourse for nonpayment of the loan.
Who owns my securities during the loan? Who has title to my portfolio during the loan?
Owner of the loan is dependent on the type loan executed. There are two types of stock loans.
In this scenario, the borrower retains ownership of the security and custodian keeps the stock.
• LTVs are generally around 40%,-60%
• Interest rates are usually 4%-6% and lower origination fee
In this scenario the stock loan program requires the title to the portfolio to be transferred to the lender, with the borrower retaining all beneficial interests in the securities. Below are the details for this type of loan:
• LTVs higher, up to 80%.
• Interest rates are much lower, starting at 3% fixed.
• These are non-recourse loans, meaning no personal liability.
• Borrower can walk away at any time.
• Borrower receives all tax benefits that flow from the stock devaluation
and lower disposition price if the stock drastically decreases in value.
Is the transfer of my securities to the lender safe?
Yes. - the safest and most common custodian system used in the securities industry, both nationally and internationally. Shares are transferred directly into the lender`s account for the duration of the loan term.
What if the value of the portfolio falls significantly? What does the default provision in the loan mean?
If the value of the stock falls below the agreed upon minimum value stated in the contract, the loan will be in default. For a default to occur, the share price in the example must fall at least 44%.
In the event of a default, the interest rate and interest payment remain but the loan agreement may require the borrower to contribute additional shares or cash to make up the devaluation and keep the loan viable. The decision to provide additional shares or cash is up to the borrower. The borrower always has the option to terminate the loan if they decide against curing the default.