Securities-Backed Loans: Everything You Need to Know
If you own stocks, you’ve probably heard of securities-backed loans (SBLs). But, like many investors, you might not be as familiar with them as you should.
Maybe you’ve just never learned about them. Or, maybe you hold misconceptions that make you fearful of looking into them further.
Luckily, we’re here to help! This guide tells you everything you need to know about securities-backed loans. Read on to learn what exactly they are, how they can benefit you, and how you can apply for one.
Ready to apply for a securities-backed loan? Apply online today! Our team will provide you with an instant quote.
What Are Securities-Backed Loans?
A securities-backed loan, sometimes called a securities-based loan, is when a lender lends money to a borrower, and The borrower uses their securities (stocks, bonds, etc.) to secure the loan . If the borrower defaults on the loan, the lender uses their securities to repay the loan.
How Do They Work?
Typically, the lender is a private bank, brokerage, or non-bank lender (like Stock Loan Solutions). They work with the borrower to establish the terms of the loan in a loan agreement.
The lender starts by analyzing the borrower’s portfolio. This helps determine whether the borrower is eligible and what the maximum loan amount can be. Note that other factors (like how many shares the borrower is willing to pledge) also impact the potential amount.
Then, the lender will write up an agreement. It will cover details like funding process, term length, interest rate, repayment..
Before receiving the loan, the borrower will have to transfer their securities to the lender. This gives the lender access to the pledged shares. If the borrower defaults on the loan, the lender will obtain ownership of the securities. The lender then sells the shares to close out the loan.
Who Applies for Securities-Backed Loans?
Most commonly, accredited investors or businesses owners are the ones who apply for securities-backed loans.
If you need cash without selling your stocks, call us today about our securities-backed loans. We’ll walk you through the entire process and get you funded ASAP.
What Can You Use Securities-Backed Loans For?
There are some limits as to what you can spend the money on. For instance, you cannot use it to invest in other securities or pay off margin debt. Be sure to talk to a lawyer to know what limitations are in place.
Aside from a few restrictions, you can spend the loan proceeds as you please.
People commonly use the money for personal reasons. They may use it to pay off debt, cover tax payments, or purchase real estate. They may also use it to fund vacations or buy luxury items.
Companies also use securities-backed loans. They may use the money to cover expenses or expand their business.
How Much Money Can You Get?
At Stock Loan Solutions, borrowers can request loan amounts from $50,000 to $5 million.
How much you qualify for largely depends on the value of the shares you’re willing to pledge. The amount also depends on factors like term length and how well your shares are performing.
When you apply for a loan with Stock Loan Solutions, our team will help you get the amount you need. Contact us today for an instant quote!
How Much Interest Will You Pay?
When you get a securities-based loan, you have to pay interest on your loan amount. Lenders usually use a fixed interest rate .
The exact interest rate will vary depending on the firm. It will also vary based on your loan portfolio’s total value. More valuable portfolios typically translate to lower interest rates.
If you want to know exactly how much interest you can expect to pay, give us a call! We will give you an instant quote.
How Long Is the Loan Term?
Firms offer term lengths ranging from 1-5 years.
At Stock Loan Solutions, our typical term length is 36 months. This gives you plenty of time to repay..
While 36 months is typical, our team is willing to work with you. We will come up with an agreement that aligns with your unique financial goals. Call us today for more information!
How Quickly Will You Get the Cash?
You don’t want to be waiting around for cash when you need it most.
At Stock Loan Solutions, we give instant quotes. We will get to work right away and can close a deal in as little as 48 hours. You should be able to get the cash within a few days.
How Do You Access the Cash?
To access the cash, most lenders will wire the funds to your designated bank account.
How Does Repayment Work?
Over 36 months, you will make regular interest payments. Most stock loans are usually interest-only. Details vary from situation to situation, and your agreement will cover details like:
- How frequently you must make interest payments
- The interest payment amount
- What happens if you miss an an interest payment
What Are the Benefits?
SLBs are an attractive option for many investors. They offer benefits including:
- Providing easy access to capital. It is relatively easy to be approved for an SBL. Once you’re approved, you’ll get quick access to your funds. There are few limitations as to what you can do with the money. This means that you can efficiently fund your business, pay off debt, buy luxury goods, etc.
- Preventing you from having to sell your stocks. You might be wondering “Can’t I just forgo an SBL and sell my stock?” Doing this would give you access to the capital you need. However, selling your stocks might not be the smartest move. It could throw a wrench in your long-term investment strategy. You won’t be earning dividend income or retaining ownership of shares that could become more valuable. And, when you sell stock, you may have to pay taxes on any capital gains.
- Low interest rates. SBLs typically offer lower interest rates than traditional loans. This makes them an affordable way to get the cash you need. When you apply for an SBL, trust Stock Loan Solutions to give you a very competitive interest rate.
What Are the Risks?
Like with any kind of lending, SBLs come with risks. The main risk associated with this type of lending is the chance of a forced liquidation.
Let’s say you own stock in Company X that is performing well. You pledge your shares and qualify for an SBL. You get a loan for the amount of money you need.
Down the line, Company X tanks. This causes your shares to drop in value, meaning your portfolio value of your loan also drops. The firm will most likely require you to pledge additional shares or transfer cash to improve your portfolio value.
These risks make SBLs most suitable in short-term situations. They are ideal in cases where you need instant access to lots of cash (emergencies, when you need a bridge loan, etc.).
Regardless, SBLs are a reliable option for investors. They are easy to qualify for and quickly get you the money you need. Plus, they have flexible repayment options. Call us today to apply.
Am I Eligible?
To be eligible for our securities-backed loans, you must own shares on an exchange we accept. Note that we accept most major exchanges around the world. Additionally, your shares must be non-marginable and free of trading restrictions.
The only other requirement is to request an amount between $50,000 and $5 million. If you meet these requirements, call today! We’ll get you started on the application process.
Securities-Backed Lending vs Securities Lending
So far, we’ve discussed everything you need to know about securities-backed lending. We feel that it’s worth mentioning how this differs from securities lending.
Many people get these terms confused; some don’t even realize they are two different things.
Securities lending is when an investor borrows stock or other assets from a firm, usually a broker.. The borrower can use the newly acquired securities for practices like short-selling or hedging.
In a way, securities-backed lending and securities lending are opposites. With the former, you receive cash when you pledge your shares. With the latter, you receive stocks when you put cash (or other stocks) up as collateral.
Why Choose Securities-Backed Loans Over Other Types of Loans?
Securities-backed loans come with some risks. But, they offer many advantages over other types of loans.
One of the main advantages is the low interest rates compared to traditional loans.
SBLs also have advantages over other types of loans. For instance, they have more repayment options than margin loans. And, while somewhat risky, they carry less risk than other forms of lending.
Apply with Stock Loan Solutions Today
Do you need immediate access to a large amount of cash? An SBL might be the solution you need.
Your personal risk is minimized because only your pledged shares are at risk. You’ll get the money you need to cover any number of expenses. And, with flexible repayment options and low interest rates, SBLs can be an ideal lending option.
Apply today with Stock Loan Solutions! We’ll walk you through the application process and create an agreement just for you. From application to closing, we’ll be there with you every step of the way.