Financing a business venture is a difficulty that many start-up owners have encountered. While you can pin your hopes on the success of a GoFundMe or angel investors, these are not always promising and certainly not guaranteed. Fortunately, stock loans are another way to get funds if you own shares in securities.
For those struggling to gain access to money lending via traditional banking institutions, stock loans, also called securities lending, can be a helpful financial resource. These types of loans present a useful amount of liquidity and lower borrowing costs. Here, we will run through their basic features and both their advantages and potential drawbacks.
Strengths of Stock Loans
Stock loans are a means of investing that, in the past, was only accessible to investors with a large net worth or international corporations. However, they are now available to smaller investors.
One of their strengths is that along with offering a greater ability to access your funds, they also provide potential asset appreciation. There are also regulations on these loans under SEC Rule 144, providing oversight and protecting your assets.
Further benefits to this type of loan include freedom from transfer, application and underwriting fees and interest rates from 2%. These types of loans also don’t require you to justify why you are applying for the loan or explain the purpose of taking them out. In this sense, they are akin to personal loans, meaning they could be used for situations like medical emergencies.
Collateral and Other Risks
While loans are often essential to secure the money needed, they are normally taken out against some form of collateral, to ensure banks and lenders believe you will be able to repay the loan. This is often a stumbling block for start-up owners. It can be uncomfortable putting your car or home at risk to finance your business. However, firms such as Easy Stock Loans allow you to expand your financial portfolio without staking precious assets
Loans secured by stock shares provide lending almost equal to the value of the stocks themselves and up to 90% of it. This can work with shares as small as penny stocks or with non-marginable securities.
Margin loans from major banks, on the other hand, often have further drawbacks, which can include extraneous fees, strict rules about the type of asset, and the risk of margin calls.
If you do end up in the position of defaulting on this investment, it does not mean losing valuable assets. Even if the stock’s price, falls you may walk away without damaging your credit rating. These loans are therefore free of personal liability.
Another key strength that lies in securities-backed loans is avoiding taxes applicable to capital gains. There are no tax penalties applicable to selling securities in this case.
Drawbacks
There are of course drawbacks to this type of loan, and we will now run through some of them.
The amount of money offered by the lender for the loan will depend on their valuation of the shares you put forward. However, the amount you receive may be less than the stock’s value. Lenders typically offer 60-80% of your collateral’s value.
The company that your stocks are based with may be at risk as well. The company not being on a lenders’ list can lead to applications being rejected.
Loss of control is also something to consider as you partially lose authority via this type of loan. If you then wish to sell the shares at a profit, the loan can limit you from this. However, you do acquire full control of the stocks on repayment.
The Takeaway
As a start-up owner, you deserve all the means available to see the success of your business. With stock loans, you can find the liquidity you need without putting your personal assets at risk. Shop around for securities lenders today and get ready to invest in the future of your business.
