"Turning Assets Into

Cash Without Selling"

 

Frequently Asked Questions

What is a Stock Loan?
A non-recourse stock loan by definition is a loan against the value of a stock or portfolio of stocks whereby the shareholder can borrow up to 85% of the portfolio’s market value. You typically pay a below prime interest rate for the term of the loan.  At the end of the loan term, you either pay off the loan and receive your portfolio back with any appreciation, refinance the loan or, if the value price has fallen below the LTV amount, forfeit the shares without paying back the loan (non-recourse) with no liability or effect on your credit rating.

What securities are eligible for a Stock Loan?
Any publicly traded security is eligible. Stocks, bonds, mutual funds, ETF's (Exchange-Traded Fund), ADR's (American Depositary Receipt), penny stocks (stocks on the pink sheets or bulletin board stock), foreign stocks and bonds are all eligible. Typically, we look for a minimum of $100,000 daily trading volume for each publicly traded security.

Am I personally liable for this loan?
No, this is a "non-recourse" loan; the lender cannot come after you personally. There is no personal liability associated with our stock loan program. The only collateral for the loan is the portfolio and the only recourse the lender has is against the portfolio. You have no personal liability exposure.

Is the loan reported to the credit bureaus or reporting services?
No, the portfolio loan is not reported to the credit bureaus and there is no public record of this loan. Even if you elect to walk away from the loan and default because you have more money than the stock is worth, it is not reported.

Are foreign securities allowed to be used as collateral in stock loan transactions?
Yes, many foreign securities are allowed to be used as collateral.  Please contact us for details.

What is the Loan to Value (LTV) percentages for the loans?
The LTV’s vary depending on the quality of the securities being collateralized. High quality large cap stocks can get up to 85% LTV. Small cap or pink sheet (penny stocks) securities will have less LTV.  It depends upon the quality and type of security owned. Each loan is evaluated on a case-by-case basis. The highest LTVs are offered to high quality securities such as Blue Chip stocks.

How are the securities evaluated?
Stability, trading volume and share price are factors in determining the interest rate, term and Loan to Value. Good stocks, like good investments, always get the best terms. Typically, we look for a minimum of $100,000 daily trading volume for each publicly traded security.

The most attractive interest rates and terms and conditions are available to those stocks with high volume, high price, and low volatility. Stocks with share prices over $5 typically get the best pricing as long as volatility is low and volume is strong and steady. Exxon, Proctor and Gamble, and Cisco are considered blue chip stocks and ideal cases.

Strong and steady volume is highly prized as it allows some predictability. The leading indicators when determining the eligibility of a stock as collateral are going to be exchange, volatility, share price, liquidity, trends, filings, short term trading volume and long term trading volume.

What interest rates are available?
From 3% Fixed Interest Only Rate: This means it can be as low as 3%, but it can also be higher. It depends upon the quality and type of security owned. Stability, trading volume and share price are factors in determining the interest rate.

Is a credit report required?
No credit report is required. Whether you have great credit, bad credit, or no credit, there is no need to be concerned about credit.

Is my income and employment verified?
No, your income and employment is not required and not disclosed. Our simple application does not ask for this information. It's a true "no documentation" stock loan.

How long does the loan process take to close?
Unlike the traditional mortgage process, our pledged asset loan can close in as little as a few days depending on the speed at which the borrower processes the paperwork. Complete our very simple loan application form.  Return it to us and we'll typically provide you with a term sheet in less than 24 hours.  International requests may take longer.

Is there a restriction on the use of the cash loan proceeds?
You may essentially do anything with the cash loan proceeds. Buy a business, buy a home, pay-off a mortgage, business expansion, investment real estate, etc. You cannot buy or carry marginable securities with the proceeds. However, this is a disclosure issue for you about the sources of the funds and lies with our lender or broker dealer.

If the stock issues a dividend during the loan, will I get it?
Yes, you will receive a credit against the interest payment of all amounts equal to dividends, interest or other distributions on the portfolio during the term of the loan.

What happens if I default on the loan? What happens if I fail to make my payments?
On a non-recourse loan you, as the borrower, have no personal liability. There are general rules we can share regarding tax treatment of a default. The amount realized is the difference between the loan amount and the cost basis of the shares. However, any tax related questions should be referred to a licensed tax professional.

What stocks are NOT eligible for a Portfolio Loan?
Closely held stock, private company stock and certain restricted stocks are not eligible. We will consider certain "restricted" stocks on a case-by-case basis.

Are there risks involved with portfolio loans?
It is important to know that risks are involved with any type of security transaction due to the nature of them. Portfolio loans are often placed in a minimal risk category. This is due to various reasons, but mostly due to the non-recourse nature of our stock loans.

Who owns my portfolio during the loan?  Who has title to my portfolio during the loan?
This depends on the stock loan program the borrower chooses. There are many types of stock loans. For the sake of this question, we'll narrow it down to two types.  First, there are loan programs where the borrower retains full title and ownership. The LTVs on these types of stock loans are generally much lower around 50%, even for blue chip stocks.  The interest rates on these loans are typically variable and usually based on the libor index plus a margin or the prime rate plus a margin.  There could also be additonal personal liability with this type of a stock loan if the value of the pledged securities falls below a certain point. 

The second type of stock loan program is where the title to the portfolio is transferred to the lender, but the borrower retains all beneficial interests in the securities. The LTVs on these types of stock loans are generally higher, up tp 85%.  The interest rates on these types of stock loans are generally much lower, starting at 3% fixed.  These stock loans are non-recourse, meaning no personal liability.  The borrower can walk away from the loan at any time.  The borrower will receive any beneficial interest in dividends or any other benefits that flow from the portfolio during the term of the loan.

Is the transfer of my portfolio to the lender safe?
Yes. Transfers occur via a secure, nationally and internationally accepted transfer using the DTC system - the safest and most common system used in the securities industry. Shares are transferred directly into the lender's safekeeping account for the duration of the loan term. Confirmations of every step of the transfer process, by phone and e-mail, are provided upon request to every client. DTC transfer is a securities transfer method used by banks and brokerages throughout the U.S. and many foreign countries with an excellent record for security and transparency. 

What happens if I default on the loan? What are the tax consequences?
On a non-recourse loan you, as the borrower, have no personal liability. There are general rules we can share regarding tax treatment of a default. The amount realized is the difference between the loan amount and the cost basis of the shares. However, any tax related questions should be referred to a licensed tax professional.

What if the value of the portfolio falls significantly? What does this default provision in the loan mean?
If the value of the stock falls below the agreed upon minimum value in the contract, there is an event of default. The minimum value is 80% of the loan amount, or whatever is agreed upon. For example, assume the stock had a market value of $10 per share when the loan was made. Also, assume the loan terms established a 70% LTV, so the loan was for 70% of the market value or $7 per share. If the value of the stock falls below 80% of the loan amount, here $7, then there is a default which can be cured by the borrower. In this example, the share price would have to go below $7 x 80%, or $5.60 per share. For a default to occur, the share price in the example must fall more than 44%.

While the interest rate and interest payment remain constant.  But due to the potenial volatility of the collateral, the contract may require the borrower to contribute additional cash or shares to keep the loan viable. The decision to tender additional cash or securities is solely in the borrower's hands. The borrower could choose not to risk more capital and terminate the loan, or the borrower could choose to keep the loan in good standing by curing the default caused by the loss in value of the collateral.

The additional cash or shares tendered to cure the default generally do not become part of the collateral for the loan are not subject to repayment or refund at any time. At origination, the borrower and the lender agree to a minimum fair market value for the collateral of the loan. The payment of the additional cash or securities establishes a new lower minimum fair market value and higher risk threshold for the lender and borrower alike. Those funds "buy-down" the price of the security to set a new floor for the stock and thus maintain the minimum value ratio between the amounts of money loaned and the minimum value of the security for which the lender is willing to risk.

Please contact us with any additional questions or fill out our simple online application.
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Benefits

  • Terms in 24 Hours
  • Quick Closings
  • Rates from 3% Fixed
  • Keep All Appreciation
  • Keep All Dividends
  • No Credit Check
  • No Credit Reporting
  • No Income Verification
  • No Employment Verified
  • Non-Recourse Stock Loan
  • Non-Purpose Stock Loan
  • U.S. Exchanges
  • Most Foreign Exchanges
  • Up to 85% LTV - Stocks
  • Up to 95% LTV - Bonds
  • $100,000 Minimum Loan
  • Loans Up to $100 Million+
  • 3,5,7,10 Year Terms 
  • Payoff or Renew

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