More Information

Margin Loans vs. Securities Based Lending

• Margin loans can only go up to 50% of the value of the stocks – we are able to go to 80%.
• Margin loans are not allowed to lend on stocks valued at less than $10.00 per share – we offer the loan on any price share.
• Margin loans rates are typically 5 – 8% ARM’s – We are between 2.5 – 4.5% fixed rate.
• Margin loans are FULL-recourse – ours are NON-recourse with NO personal liability.
• The “call” on margin loans is set at 80% of the stock value and they have one day to cure – our “call” is set at 80% of the loan amount (approximately 60% of the stock value) and we offer 5 days to cure and since ours are non-recourse loans if the borrower cannot cure the loan default they can simply walk away.

You should understand the fundamental characteristics of traditional securities-based loans which ensure the financial viability of the funding process for both the borrower and the lender. Based on our experiences over time and our success in returning collateral to the borrower, most stock loans have:
A loan-to-value ratio (LTV) of under 80 percent;
A term of 36 months or longer; and
A favorable interest rate with regular quarterly interest-only payments.

The more informed you are about the lending process, the greater likelihood that we can successfully create a tailored solution to fit your funding needs.

What to Avoid When Choosing Securities-Based Loans

High LTV
Avoid unrealistically high loan-to-value ratios. In our experience, the closer the LTV approaches 100 percent of the total asset value, the less likely it is that the lender will be capable of hedging the position and generating sufficient capital in order to return the securities at the end of the loan term.

Full recourse loans
Additional liability, fees, and penalties may be assessed.

Short loan term
Be cautious of loan terms that are less than three years, especially when the LTV is higher than 75 percent. That’s because there is insufficient time for the lender to leverage pledged collateral conservatively in a financially profitable and sound manner for all concerned.

High interest rate
Certain lenders may offer a loan with no interest payments during the life of the loan. However, the interest is usually compounded and set at a higher rate and then becomes due in full upon loan termination. In this case, the “true” cost of funds may be hidden (either intentionally or unintentionally) from the borrower until the loan term ends and the borrower discovers that he or she owes significantly more than the actual loan value.

Poor documentation and communication
You should get detailed documentation and timely notification of interest payments due. A legitimate lender will also notify you promptly if your loan goes into default because of a significant decrease in collateral value. However, it should notify you how to “cure” your default and keep the loan current and viable.

What cannot be used as collateral:

• 401(k)’s, IRA’s or any restricted retirement fund
• Money Market Accounts*
• CD’s*
• Annuities
• Gold or silver mines
• Commodities
• CMO’s
• SBLC’s
• Bank Guarantees or Warranties
• Private notes or private bonds
• Bonds that are coming due within 3 years
• Bearer Bonds

*Can be converted to cash then securities may be purchased and used as collateral.