Non-Recourse Stock Loans by
definition is a loan against the value of a stock or portfolio of stocks whereby
the shareholder (OWNER) can borrow up to 80% of the stock value (in
some cases higher) of the portfolioís market value "without selling
the shares". Like a home equity loan for stocks but much
better, you borrow against the appraised value of the portfolio, pay a
below prime interest rate for the term of the loan and then at term end,
you either pay off the loan and receive your stock back with any stock
appreciation, refinance the loan or, if the stock 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 stocks are eligible
for a Stock Loan?
Any publicly traded security
are 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 $50,000 daily trading volume for each publicly
Am I personally liable
for this loan?" or "Can the company come after me on this loan if I do not make
this is a "non-recourse" loan; the lender cannot come after you personally.
There is NO personal liability associated with the stock loan. The only security
for the loan is the stock collateral and the only recourse the lender has is against the
stock. You have NO personal liability exposure. NO liens.
Is the loan reported to
the credit bureaus or reporting services?
NO, the Securities 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, for
example, you have more money then the stock is worth, it is NOT reported.
Are non-U.S. securities
allowed to be used as collateral in stock loan transactions?
are allowed to be put up as collateral. Some of the other countries include
Canada, UK, European countries,
Hong Kong, Israel, Australia, India, and Korea, to
name just a few. We work with clients located all over the world.
What are the Loan to
Value (LTV) percentages for the loans?
The LTVís vary depending on
the quality of the securities being collateralized. With high quality large
cap stocks you can expect LTVís up to 80% (sometimes higher) while with small
cap or pink sheet (penny stocks) securities the LTVís will be more conservative
and lower. This means it can be as high as 80% LTV but can be Lower.
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 stocks
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 $50,000 daily trading
volume for each publicly traded stock.
The most attractive interest rates and terms and conditions are available to
those stocks with good strong and steady volume and price, and low volatility.
Prices over $5/share typically get best prices 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.
From 3% Fixed
interest Rate: This
means it can be as low as 3% and can be Higher. It depends upon the
quality and type of security owned. (Interest Only) Stability, trading
volume and share price are factors in determining the interest rate. Loans for "bonds",
the interest rate may be lower, particularly T Bills.
do a stock loan for a foreigner?
YES we can. We have successfully closed many loans with borrowers
Europe, Asia and many countries around the world. Your location or where you
live does not matter. If your stock is traded on a
foreign stock exchange, we can help.
Is a "Credit Report"
NO credit report is
required and NOT requested. Whether you have great credit, bad credit, or
no credit, there is no need to be concerned. NO credit report is pulled.
Is my income and employment verified?
NO, your income and
employment is NOT required and NOT requested. Our simple application does NOT
ask or require this information. It's a TRUE NO DOCUMENTATION Stock loan. NO
job, NO problem! Self-Employed, NO problem!
How long does the loan
process take to close?
Unlike the mortgage process, a
Stock Loan can close in 5-7 days depending on the speed at which the borrower
processes the paperwork. Complete this very simple form (5 Minutes) and return
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, that is a disclosure
issue for you about the sources of the funds and lies with the bank or broker
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 stock during the term of the loan. However, you do
not get the dividend directly.
What happens if I default on the loan? / What happens if I fail to make my
NO personal liability.
None. If you do not make the
interest payments when due or fail to repay the principal when due, our only
recourse is against the collateral which is the stock, and NOT you. The loan will be terminated
and cancelled. You get to keep the money received from the stock and the lender
gets to keep all interest in the stock. The default or termination is NOT
reported to any credit bureaus.
Are there any tax
The stock loan transaction is
a non taxable event per section 1058 of the Internal Revenue Code.
Yes, most types of
eligible, such as the US Treasuries, Corporate bonds, etc.
can be pledged as collateral with fixed interest rates from 2% and sometimes
lower. And, we may be able to structure the terms as a matching, where all the
coupon interest from the bond goes toward the interest due on the loan. This
means that no interest payments would be due on the loan.
What stocks are NOT
eligible for a Stock Loan?
Closely held Stock, Private
Stock, Certain restricted stocks. We will consider certain "restricted" stocks
on a case-by-case basis if traded on NYSE/NASDQ.
Are there risks involved
with stock loans?
It is important to know that
risks are involved with any type of stock transaction due to the changing nature
of stocks. With that said, stock loans are often placed in a minimal risk
category. This is due to various reasons, but mostly due to the non-recourse
nature of many stock loans.
Who owns my stock during
the loan? / Who has title to my stock during the loan?
The stock is transferred to
the lender which has full title, but you retain all beneficial interests in the
securities. You will receive any dividends, interest or any other benefits that
flow from the stock during the term of the loan.
Is the transfer of my
shares to the lender safe?
Yes. Transfers occur
via secure, nationally and internationally accepted transfer using the DTC
system - the safest and most common system in the U.S. securities industry.
Stocks reside in these transfer accounts to await the hedging process, or are
moved directly into the lender's U.S. safekeeping account for the duration of
the loan term, depending on the loan program chosen. Confirmations of every step
of the transfer process, by phone and e-mail, are provided upon request to every
client. DTC transfer is in sum a common stock transfer method used by banks and
brokerages throughout the U.S. and many foreign countries, with an excellent
record for security and transparency. For more information on the DTC system,
please click here.
What happens if I
default on the loan?" or "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 in the stock.
What if the value of the
stock decreases or falls significantly?
We offer TWO
different stock loan programs or options to choose from.
If the stock portfolio decreases in value, the borrower
can default without penalty. This means NO cash or
additional shares are required. Just walk away from the loan without making a
payment. It's not callable.
If the value of the stock falls below the agreed minimum value in the contract,
then there is an event of default. The minimum value is 80% of the loan amount,
or whatever is agreed upon.
While the interest rate and interest payment remain constant, due to the
volatility of the collateral, the contract may require the borrower to
contribute additional cash or shares to keep the loan viable. The decision to
give 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 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 agreed 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 amount of money loaned and the minimum value of the
security for which the lender is willing to be at risk.
For example, assume the stock
had a full 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 full 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
The most attractive
interest rates and terms and conditions are available to those stocks with good
strong and steady volume and price, and low volatility. Prices over $5/share
typically get best prices 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 baselines. Good stocks, like good investments,
always get the best terms. A precise FREE analysis will be provided when
you apply. Stability, trading volume and price are factors in determining
the interest rate, term and Loan to value. 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. When providing a FREE quote, we will explain
how these factors relate to "your" securities presented as collateral.