Frequently Asked Questions  -  Securities-Based Loans



STOCK LOANSWhat is a stock loan?
Non-Recourse Stock Loans by definition is a loan against the value of a stock or portfolio of stocks whereby the shareholder can borrow up to
80% of the stock value (in some cases higher) of the portfolioís market value "without selling the shares". Like a home equity loan for stocks but much better, you borrow against the appraised value of the portfolio, pay a below prime interest rate for the term of the loan and then at term end, you either pay off the loan and receive your stock back with any stock appreciation, refinance the loan or, if the stock price has fallen below the LTV amount, forfeit the shares without paying back the loan (non-recourse) with no liability or effect on your credit rating.

What type of securities can be borrowed against?
Stocks, bonds, mutual funds. Securities listed on all major US Exchanges, smaller exchanges including Pink Sheets and Bulletin Boards as well as many Foreign exchanges. We also have programs for restricted stock both individual and corporate and stock options.

Are non-U.S. securities allowed to be used as collateral in stock loan transactions?
Yes. Some non-U.S. securities are allowed to be put up as collateral. Some of the other countries include Canada, UK, European countries, Japan, Israel, Australia, India, and Korea, to name just a few.


Is the Stock Loan program available to a Foreign residents?
Yes, Florida Mortgage Corporation is happy to offer a secure Stock Loan product to our foreign clients holding stock in the many exchanges around the World. Foreign clients must be willing to produce a copy of their passport. Non-U.S. securities are allowed to be put up as collateral. Some of the countries include Canada, UK, European countries, Japan, Israel, Australia, India, and Korea, to name just a few

Is there a restriction on the use of the loan proceeds?
You may essentially do anything with the loan proceeds except buy or carry marginable securities with the proceeds. However, that is a disclosure issue for you about the sources of the funds and lies with the bank or broker dealer.



STOCK LOANSWhat are the Loan to Value (LTV) percentages for the loans?
The LTVís vary depending on the quality of the securities being collateralized. With high quality large cap stocks you can expects LTVís up to 80% (sometimes higher) while with small cap or pink sheet securities the LTVís will be more conservative. Each loan is evaluated on a case by case basis.

Is a "Credit Report" required?
NO credit report is required and NOT requested. Whether you have great credit, bad credit, or no credit, there is no need to be concerned.  NO credit report is pulled.

Is my income and employment verified?
NO, your income and employment is NOT required and NOT disclosed. Our simple application does NOT ask or require this information. It's a TRUE NO DOCUMENTATION Stock loan.  NO job, NO problem!  Self-Employed, NO problem!

How long does the loan process take to close?
Unlike the mortgage process, a Stock Loan can close in 5-7 days depending on the speed at which the borrower processes the paperwork.
Complete this very simple form (5 Minutes) and return to us.

Who owns my stock during the loan? / Who has title to my stock during the loan?
The stock is transferred to the lender which has full title, but you retain all beneficial interests in the securities. You will receive any dividends, interest or any other benefits that flow from the stock during the term of the loan. We also offer a special loan program that you retain title and ownership.  Ask for details.

If the stock issues a dividend during the loan will I get it?
You will receive a credit against the interest payment of all amounts equal to dividends, interest or other distributions on the stock during the term of the loan. However, you do not get the dividend directly.




What stocks are eligible for a Stock Loan?
Any publicly traded security are eligible. Stocks, bonds, mutual funds, ETF's (exchange-traded fund), ADR's (American Depositary Receipt), Penny Stocks (stocks on the pink sheets or bulletin board stock), Foreign Stocks and Bonds are ALL eligible.
  Also, "Stock Options" and others

What stocks are NOT eligible for a Stock Loan?
Closely held Stock, Private Stock, certain restricted stocks

Is the transfer of the stock for the loan a sale?" or "Is the transfer of shares a constructive sale?" or "Are there taxes associated with the transfer of the stock for the loan? STOCK LOANS
No, this is not a taxable transfer. This type of transaction is addressed in the Internal Revenue Code ß 1058 which specifically states that taxpayers who enter into a qualifying stock lending agreement receive non-recognition treatment with respect to any gain or loss at the time of the transfer of the securities. This section provides an exception to the general income recognition principles of Section 1001 of the Internal Revenue Code.

Is the transfer of my shares to the lender safe?
Yes. Transfers occur via secure, nationally and internationally accepted transfer using the DTC system - the safest and most common system in the U.S. securities industry. Stocks reside in these transfer accounts to await the hedging process, or are moved directly into the lender's U.S. safekeeping account for the duration of the loan term, depending on the loan program chosen. Confirmations of every step of the transfer process, by phone and e-mail, are provided upon request to every client. DTC transfer is in sum a common stock transfer method used by banks and brokerages throughout the U.S. and many foreign countries, with an excellent record for security and transparency. For more information on the DTC system, please click here.


What happens if I default on the loan?" or "What are the tax consequences?
On a non-recourse loan you, as the borrower, have NO personal liability. There are general rules we can share regarding tax treatment of a default. The amount realized is the difference between the loan amount and the cost basis in the stock.
  1)  Assume the market value of the stock was $100,000 and the loan amount was $50,000.
  2)  Assume that you had a cost basis in the stock of $10,000.
  3)  The amount subject to tax is the difference between the loan amount $50,000 less the cost basis $10,000. The amount subject to tax is $40,000.
This will typically be treated as a capital gain. You will have to consult with your own tax advisor for a final answer.


Am I personally liable for this loan?" or "Can the company come after me on this loan if I do not make payments?
No, this is a "non-recourse" loan; the lender cannot come after you personally. There is NO personal liability associated with the stock loan. The only security for the loan is the stock and the only recourse the lender has is against the stock. You have NO personal liability exposure.

Is the loan reported to the credit bureaus or reporting services?
NO, the Securities loan is not reported to the credit bureaus and there is NO public record of this loan. Even if you elect to walk away from the loan and default because, for example, you have more money then the stock is worth, it is NOT reported.

What happens if I default on the loan? / What happens if I fail to make my payments?
If you do not make the interest payments when due or fail to repay the principal when due, our only recourse is against the stock. The loan will be terminated and cancelled. You get to keep the money received from the stock and the lender gets to keep all interest in the stock. The default or termination is NOT reported to any credit bureaus.


Are there risks involved with stock loans?
It is important to know that risks are involved with any type of stock transaction due to the changing nature of stocks. With that said, stock loans are often placed in a minimal risk category. This is due to various reasons, but mostly due to the nonrecourse nature of many stock loans.

Since 1989What if the value of the stock falls significantly? / What does this default provision in the loan mean?
If the value of the stock falls below the agreed minimum value in the contract, then there is an event of default. The minimum value is 80% if the loan amount.

For example, assume the stock had a full market value of $10 per share when the loan was made. Also, assume the loan terms established a 70% LTV, so the loan was for 70% of the full market value or $7 per share. If the value of the stock falls below 80% of the loan amount, here $7, then there is a default which can be cured by the borrower. In this example, the share price would have to go below $7 x 80%, or $5.60 per share. For a default to occur, the share price in the example must fall more than 44%.

While the interest rate and interest payment remain constant, due to the volatility of the collateral, the contract may require the borrower to contribute additional cash or shares to keep the loan viable. The decision to tender additional cash or securities is solely in the borrower's hands. The borrower could choose not to risk more capital and terminate the loan, or the borrower could choose to keep the loan in good standing by curing the default caused by the loss in value of the collateral.

The additional cash or shares tendered to cure the default do not become part of the collateral for the loan are not subject to repayment or refund at any time. At origination, the borrower and the lender agreed to a minimum fair market value for the collateral of the loan. The payment of the additional cash or securities establishes a new lower minimum fair market value and higher risk threshold for the lender and borrower alike. Those funds "buy-down" the price of the security to set a new floor for the stock and thus maintain the minimum value ratio between the amount of money loaned and the minimum value of the security for which the lender is willing to be at risk.




   Inexpensive:  Below market, "interest only" payments  (From 3%  FIXED  Interest Rate)

   USA Stock Exchanges and Foreign Stock Exchanges   (International)

   Flexible Lending Terms:   Loan terms of 3, 5, 7 years  (Up to 80% of Stock Value)

   Non-Recourse:   Never at risk for more than the pledged assets

   Use of Funds:   Virtually no restrictions on loan proceeds or use

   Simple:   NO Credit Report  *  NO Income Verification  *  NO Employment Verification

   Quick:   Loan closings typically within a week

   Loan Amounts:   From $100,000 to $100 million

   Upside:   Borrower can benefit from asset appreciation, dividends, etc.

   NOT reported to credit bureaus

   Flexibility:  At the end of the term, loan can be paid off, refinanced or renewed

   401k  & IRA  -  NOT Eligible





$ 100,000

$    250

$ 200,000

$    500

$ 300,000

$    750

$ 400,000

$ 1,000

$ 500,000

$ 1,250

$ 600,000

$ 1,500

$ 700,000

$ 1,750






The above illustration is a estimated  example only, based on From 3% "Interest Only" payments. The most attractive interest rates and terms and conditions are available to those stocks with good strong and steady volume and price, and low volatility. Prices over $5/share typically get best prices as long as volatility is low and volume is strong and steady. Exxon, Proctor and Gamble, and Cisco are considered blue chip stocks and ideal cases. Strong and steady volume is highly prized as it allows some predictability baselines. Good stocks, like good investments, always get the best terms. A precise FREE analysis will be provided when you apply. Stability, trading volume and price are factors in determining the interest rate, term and LTV. The leading indicators when determining the eligibility of a stock as collateral are going to be exchange, volatility, share price, liquidity, trends, filings, short term trading volume and long term trading volume. When providing a FREE quote, we will explain how these factors relate to "your" securities presented as collateral.  No obligation.

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