FAQs
Section 1:Stock Loan Basics/ Ownership/ Who is Eligible/ Eligible Securities/ Required Documents
What is a stock loan?
A stock loan or securities-based loan is a low rate loan obtained by using stocks or other securities as collateral. Depending on the securities pledged, a client can borrow up to 90% of the value the securities owned. Stock loans are non-recourse, meaning that a borrower is only liable for the stock or securities pledged.
What securities eligible for obtaining a stock loan?
Publicly traded stocks, bonds, government securities, mutual funds, exchanged traded funds (ETF’s), and some foreign stock and bonds.
Can only one type of security be pledge as collateral for a stock loan?
A single stock or a portfolio of securities can be used for . These are securities-based loan so real estate precious metals, or gem stones cannot be used as collateral.
Can only one type of security be pledge as collateral for a stock loan?
A single stock or a portfolio of securities can be used for . These are securities-based loan so real estate precious metals, or gem stones cannot be used as collateral.
Who is can obtain a stock loan?
Individuals, businesses, corporations, trusts, institutions or charities, all can obtain a stock loan.
Can a stock certificates be used?
Yes, as long as it is a publically traded company.
What are the requirements or documents need to obtain a stock loan?
Proof ownership of securities and a market value of securities that meet a minimum loan amount of or line of credit of $50,000. Proof ownership requires a brokerage statement showing securities held. A credit check or detailed personal financial documentation is not required.
Section 2:Stock Loan Rates/ Terms/ Loan Amount/ Loan-to-Value/ credit line/ minimum & maximum credit line
What are the expected rates for a stock loan?
Our channels offer exclusive rate. Borrowers can obtain variable rates that are less than 1%. The lending institutions compete for rates so clients can expect competitive rates. Fixed rate currently range from 3% to 5%.
How are rates determined?
Rates are dependent on the lenders but, in general, the greater the loan amount the lower the credit. All loans start as a credit line. Clients will work with advisor to determine suitability and rate structure. Variable rate loans are interest-only loans with no set maturity date. Variable rate structure is typical a spread plus an index such as LIBOR or Fed Funds Rate. The spread is what the lenders charge. Fixed rate are term loans usually 6 months to 7 years. Fixed rates are determined by the prevailing swap rate between the variable and fixed rate. Fixed rates are typically higher than variable rate loan.
What is the term of a stock loan?
The line of credit is continuous. For variable rate loan, the interest on the principle depends on loan taken out. It is a rolling balance, money that deposited in the account reduces the principle and subsequently reduces interest obligation, and vice versa. For fixed rate loan, a borrow can decide a fixed rate period from 6 months to 7 years, and, at the end of period, it may converted to a variable rate or continue as a fixed rate at prevailing levels.
How much can be borrowed against a securities portfolio? Or what is the loan-to-value?
Depending on the securities, the loan amount can be as much as 90% of the portfolio value. Bonds are can reach to 90% loan-to-value while stocks can be as high as 70% loan-to-value. The risk, quality, and volatility of underlying securities are important considerations in the loan amount.
What is the minimum and maximum credit line?
The minimum initial line of credit amount is $50K and the required portfolio to support it, which would depend on the loan to value ratio. Maximum credit is up to 90% of portfolio value, again that would depend on the securities used for collateral.
How can a business take advantage of a line of credit?
Business, corporation, and institutions can manage cash by using a line of credit. A credit line allows cash to be moved into eligible portfolio of securities that offer higher yield while not having to burn through cash for short term needs. The line of credit allows businesses to invest in their enterprise.
When does obligation begin?
There is no obligation until monies are withdrawn from the line of credit or a loan is taken out.
Section 3:
Benefits/ Ownership/ Dividend/ interest income/ Non-recourse/ purpose nonpurpose loan/ credit report
What are the benefits of a stock loan?
No hassle requirements such as credit score or detailed financial documents.
Non-recourse. The lender can only seize the collateral, but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount.
Dividend and Income. Clients retain dividend and income from portfolio.
Capital Appreciation. Clients keeps the benefits of increases in the value of their stock or portfolio.
Ownership. Clients retain title and ownership of securities.
Purpose and Nonpurpose Loans. Clients can choose whatever they want to do with their loan. They can buy securities (purpose) or use it for other means such as buying real estate (nonpupose).
Is the stock loan reported to the credit bureaus or reporting services?
No, the loan is not reported so it doesn’t affect credit score, whether holding the loan or in an event of default.
What happens to the dividend and income from the portfolio?
The clients retain dividends and income and can reinvest or withdraw the proceeds.
Is there a transfer of title or ownership of stock when entering a stock loan?
No. There is no transfer of ownership. This is important because clients receive the benefits of ownership and keep control.
Should there be a default, can the lender seek recovery beyond the collateral?
No. Stock loans are non-recourse loans so the lender’s recovery is limited to the collateral. The security-based loan are considered over-collateralized: the loan-to-value is less than 100%
Section 4:
Use/ Restrictions/ Risks/ maintenance call/ prepayment/ Repayment
Is there a restriction on the use of the loan proceeds?
No. Once the account has been opened for the stock loan, the only restriction is the to maintain the asset value in the account.
Are borrowers personally liable?
No. A stock loan is a nonrecourse loan. The only recourse for the lender is the stock or portfolio in the account used for collateral.
Are the stock loans callable?
Yes. Since the loans are backed by the value of the security, should the value of the securities in portfolio fall, to bring the balance back to value shares may be sold, additional securities or assets added, or reconfigure the portfolio to higher loan to value securities. Consideration must be made for the possibility of volatility in portfolio and the amount borrowed. Additionally, borrowers should weigh advice on hedging strategies by licensed financial advisors. The maintenance ratio depends on the lender.
When does obligation begin?
There is no obligation until monies are withdrawn from the line of credit or a loan is taken out.
Is there penalty for prepayment or paying off the loan early?
No, variable rate loans may be prepaid at any time with no penalty. Fixed rate loans may incur a prepayment penalty depending on the lender. Variable rates can be converted to fixed.
How are the loans repaid?
Variable rate loans have a rolling balance. Cash that comes in reduces the principle, cash going out increases the balance. Interest is determined on that balance. There is no requirement to pay monthly interest but it is prudent for clients to do so. The amount cannot exceed the maximum line of credit.
Fixed rate loans have a monthly payment requirement. A Borrower pays monthly interest-only payments only until such time as he chooses to pay the loan in full.
Variable rate loans may be prepaid at any time with no penalty. Fixed rate loans may incur a prepayment penalty depending on the lender.
Section 5:
Fees/ Tax/ Statements/ Custodian/ Statements
Is there a yearly maintenance fee?
No, there is no annual maintenance fee.
Are there fees related to opening a stock loan?
It depends on the venders. Some charge a facility fee or processing fee, others do not.
Are there any tax consequences?
The stock loan transaction is a not a taxable event. All other transactions in the account such selling securities, receiving dividends or interest, normal tax rule still applies.
Why does a stock loan require opening a new account with the lenders?
It is because the securities become pledged as collateral for the stock loan. The lenders become custodians of the account. Essentially, it is not different than maintaining a brokerage account.
Who are the lenders?
The lenders are FDIC and SIPC insured institution and leading financial service firms. We work with all the firms to insure the most competitive rate and term structure.
Can borrowers obtain the low rate stock loans through their local retail brokerage channels?
No we work with both retail and institutional channels. It’s a network which we have exclusive access. These often are exclusive negotiated rates, no offered on retail channels. The rates are negotiated as well as requested for bidding on behalf of clients.
Will there be monthly statements?
Yes. It would be the same as receiving statements from bank or brokerage account. Clients will have online access as well as other products and services.
Section 6:
US STOCKLOAN
What is US STOCKLOAN's advantage?
We have a high caliber team with proprietary access to network that assists clients with securities-based financing. Not only do we use leading financial institution with secured lending, we are actively seeking the most competitive rate and terms. Additionally, we partner with specialists that assist in portfolio analysis that help manage the links between a stock loan and the portfolio.
We reduce hassle for client searching for the best rates and terms.
Our lenders offer exclusive rates not obtainable through normal retail channels.
We and our partners negotiate and monitoring stock loans for clients.