As Banks and Financial Institutions Tighten Lending Criteria, Stock-Based Loans May Offer Some Investors an Attractive Alternative to Raise Capital.
Indianapolis, IN, USA — Equities First Holdings, LLC (EFH, http://www.equitiesfirst.com), a global lender and a leader in alternative shareholder financing solutions, is seeing more traction in margin loans and stock-based loans in an economic climate where banks and other institutions have tightened lending criteria. For borrowers who need to raise capital quickly or who may not qualify for more conventional credit-based loans, equities lending is gaining popularity as an alternative.
While some options still exist for these individuals, recently, many banks have cut their lending options for borrowers, tightened loan qualifications, and increased interest rates. Al Christy, Jr., Founder and CEO of EFH, sees loans collateralized by stocks as an innovative borrowing alternative for individuals seeking working capital. Stock-based loans typically have a higher loan-to-value ratio than margin loans and offer a fixed interest rate, providing certainty throughout the life of the transaction.
“During a typical three-year loan term, market fluctuation is inevitable, but stock-based loans provide a hedge because the borrower is lowering his or her investment risk in a downside market,” said Christy. “Most stock-based loans have a non-recourse feature that allows a borrower to walk away from a stock loan at any point, even if the stock’s value depreciates. The borrower is able to keep the initial loan proceeds with no further obligation to the lender.”
As Christy notes, some consider margin loans and stock-based loans to be synonymous. Although both forms of financing use securities for collateral, there are marked differences.
With a margin loan, the borrower must be pre-qualified, as with a conventional bank loan, and may require the money to be used for a specific purpose. The interest rates are variable and the borrower can expect loan-to-value ratios between 10 and 50 percent. In addition, the lending firm may liquidate the borrower’s collateral without warning in the event of a margin call.
With stock-based loans, borrowers can expect a fixed interest rate between three and four percent and a loan-to-value ratios ranging from 50 to 75 percent. There also are no restrictions on the loan, so the money can be used for any purpose. In addition, most stock-based loans are non-recourse, so borrowers can walk away without obligation, even if the value of the collateral stock has decreased.
“Any form of financial transaction has some risk associated with it,” said Christy, “But stock-based loans have been historically ignored as a viable borrowing option largely because a number of unscrupulous lenders have unceremoniously dumped borrowers’ collateral into the open market, failed to return stocks upon transaction maturity, or failed to address other concerns. We have built our business on a code of integrity and transparency and we rely on leading legal, regulatory, and trading institutions for counsel. Our mission is to deliver maximum benefit with minimum risk so our customers can meet their personal and professional financial goals.”
About Equities First Holdings
Since 2002, Equities First Holdings, LLC (EFH) has provided clients with alternative financing solutions, supplying capital against publicly traded stock to enable clients to meet their personal and professional goals. EFH provides capital against shares traded on public exchanges around the world. The company has completed more than 650 transactions worth more than $1.4 billion to date, offering customers high loan to values at low fixed interest rates.
EFH is a global company with offices in nine countries, including wholly owned subsidiaries Equities First (London) Limited, Equities First Holdings Hong Kong Limited, Equities First Holdings Singapore Limited, and Equities First Holdings (Australia) Pty Ltd. For more information, visit, http://www.equitiesfirst.com.
This release is intended for informational use only, and does not constitute an offer, stated or implied, of any type. Equities First Holdings, LLC and all of its subsidiaries work exclusively with individuals classified as sophisticated investors. The Equities First Holdings platform is not intended for retail investors.