101 - What is a Stock Loan?

Start with the Basics.

For many shareholders, securities based lending or “stock loans” are a relatively unheard of prospect.  Lets, break it down to the basics:

 

What is a securities based loan or “stock loan”?

A securities collateralized loan, or “stock loan”, is a loan provided by a bank or private lending firm, that is secured or backed by shares of stock trading on any global stock exchange.  In other words, if you currently own $1,000,000 worth of General Electric (GE), Saris Capital could lend up to 75% of the value of the shares resulting in a loan amount to you of $1,500,000 without having to sell your shares, in a private undisclosed transaction, with no credit history or verification needed.

 

Why might I want to borrow against my shares?

The reasons could be endless, but a few core examples might be:

  • Access to needed liquidity without having to give up potential upside through a sale.
  • Hedge your position if coming market downturn is suspected.
  • Use loan proceeds to purchase higher yielding assets such as real estate or metals.

 

How much can I borrow?

Loan amounts vary and are greatly determined by the following criteria:

  • Fundamental metrics such as market cap size, daily volume, and overall history of the stock
  • The number of shares the borrower is willing to pledge as collateral.
  • The term length of the loan being sought (12, 24, or 36 months).

Other criteria are looked at but this is a good place to start when determining the amount Saris is willing to lend against a particular issue.  For example a stock that trades $1,000,000 per day consistently, will probably be suitable for a loan of $5,000,000 or more depending on the number of shares available to be pledged, while a penny stock trading $250K per day might only be suitable for a loan of $750K.  There are just examples.. every opportunity is unique, we do not take a cookie cutter approach when structuring a loan for our clients.

 

What types of stock are acceptable as collateral?

Saris accepts shares trading on most major exchanges.  The stock must not be restricted or have any margin or other form of debt or lien attached to it.  Daily dollar volume must be consistently $250,000 per day minimum, with no zero trading days or trading anomalies.

 

Tell me about the terms you offer.

Saris Capital offers very competitive terms, usually much more attractive than other types of alternative financing.  Our terms rely on a number of factors but typically a borrower can enjoy LTV’s up to 75%, and interest rates as low as 4% fixed.  Terms offered are usually directly related to the quality and performance of the collateral shares being pledged.

 

I am interested in a loan.. what is the process, and how long does it take?

The process is similar to obtaining most other types of financing.

  • In order to work up a quote, we first require a simple application, along with a photo I.D., and copy of a current account statement.
  • Once we have this information, we usually are prepared to make an offer within 1-3 business day, at which point an executable term sheet outlining the structure and terms of the loan is prepared and delivered to the client.
  • Once the term sheet has been ok’d, executed and returned, Saris will then issue loan docs.
  • If at this time the loan structure is without transfer of ownership, account opening docs at an mB approved brokerage will also be included with the loan docs.
  • Once the loan docs have been executed and shares transferred to the brokerage, Saris will fund the loan proceeds to the client.  In most cases we are willing to DVP, ultimately it depends upon certain risk factors on smaller deals with riskier stocks.
Saris Capital and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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