What Is Loan Stock?
A Stock Loan refers to shares of common stock that are used as collateral to secure a loan from another party. The loan has a fixed interest rate, much like a standard loan, and is secured against publicly traded stocks on exchanges worldwide.
The key difference with our stock loans is that we require no financial records, no personal guarantees. These loans are non recourse and can be taken out within as short as 14 days provided documentation is as requested. Loans can be paid out to clients in most locations globally.
KEY TAKEAWAYS
- A loan stock is an equity security used as collateral to secure a loan.
- This practice potentially creates the risk for the lender that the value of the collateral will fall if the stock price drops.
- Loans are non recourse
- Loans can be from as low as $1 million and as high as $500 million dollars.
Understanding Loan Stock
When a loan stock is being used as collateral, the lender will place the ownership into a custodian entity. Lenders may maintain physical control of the shares until the borrower pays off the loan. At that time, the shares would be returned to the borrower, as they are no longer needed as collateral. This type of financing is also known as portfolio loan stock financing. Dividends are used towards the loan payments.
Risks to Lenders
Since the price of a share can fluctuate with market demand, the value of the stock used to secure a loan is not guaranteed over the long term. In situations where a stock loses value, the collateral associated with a loan may become insufficient to cover the outstanding amount. If the borrower defaults at that time, there is no liability to the borrower.
How is a value assigned to the stock?
A loan-to-value (LTV) ratio is established based on the portfolio, similar to how a home’s value is assessed when securing a home mortgage, and the funds are backed by the security holdings in the borrower’s portfolio.
Want to know more?
