What 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 portfolio’s 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.
AVAILABLE IN ALL 50 STATES -
NATIONWIDE & INTERNATIONALLY
What are the Loan to
Value (LTV) percentages for the loans?
The LTV’s vary depending on the quality of the securities being
collateralized. With high quality large cap stocks you can expects LTV’s
up to 80% (sometimes higher) while with small cap or pink sheet securities
the LTV’s 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
thisvery 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.
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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?
No, this is not a taxable transfer. This type of transaction is addressed
in the Internal Revenue Code § 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.
Example:
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.
AVAILABLE IN ALL 50 STATES -
NATIONWIDE & INTERNATIONALLY
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.
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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.
What 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.
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CUSTOM QUOTE - NO OBLIGATION
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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.
What is a stock loan?
What if the value
of the stock falls significantly? / What does this default provision in
the loan mean? 
Inexpensive: Below market, "interest only"
payments (From
3%
FIXED Interest Rate)