Using a stock-secured loan to raise business capital

The Challenge: Expanding Your Business

A Solution Use funds from your stock-secured loan or line of credit to enhance credit or improve cash flow. John Shareholder owns a farm with a 10% interest note that collateralized by all of his equipment and most of his other farm assets. He needs expansion capital and owns 100,000 shares of the stock XYZ worth $10 a share, but he expects good news this year that he hopes will boost the stock's price and really doesn't want to liquidate his interest in it. With our institutional loan program (assuming a rate of 4.35%) for example purposes, he can refinance the farm, get the capital to grow the business and remove the liens from all other assets. If his favorite stock goes up, he can participate in the upside. If the securities are optionable and marginable, he can obtain a hedged portfolio stock loan to limit his exposure in default. Either way, he kept the capital he needed and could grow his farming business.	Behind the Numbers: Example: Note on farm : $500,000 @ 10% interest. Working capital requirement: $200,000. Total needed: $700,000. Proceeds from 75% LTV hedged portfolio stock-secured loan (HedgeLoan) of $1MM of the stock XYZ: $750,000. Depending on his interest rate (as low as 3% with our institutional facility), he would conservatively at least $15,000 per year in interest expense on the existing $500,000 note on the farm. He can then invest $200,000 in new land or supplies, pay off outstanding debt, or use the cash optimizing financial management of his firm. He can participate in upside of stock (or securities, if appreciable) if they rise in value, and freely exercise the default option if necessary. In addition, he can go to the bank to get financing if he needs it in the future because all of his assets would now be free and clear. The remaining $50,000 could be used as a buffer or for personal applications. If you'd like to locate an appropriate lender for your securities-based financing, use a major search engine to begin your search.
Return to Solutions (Index) Copyright © 1999-2010 Loanstock.org. All rights reserved. More on securities finance from Wikipedia here.

A Solution

Use funds from your stock-secured loan or line of credit to enhance credit or improve cash flow.

John Shareholder owns a farm with a 10% interest note that collateralized by all of his equipment and most of his other farm assets. He needs expansion capital and owns 100,000 shares of the stock XYZ worth $10 a share, but he expects good news this year that he hopes will boost the stock's price and really doesn't want to liquidate his interest in it.

With our institutional loan program (assuming a rate of 4.35%) for example purposes, he can refinance the farm, get the capital to grow the business and remove the liens from all other assets. If his favorite stock goes up, he can participate in the upside. If the securities are optionable and marginable, he can obtain a hedged portfolio stock loan to limit his exposure in default.

Either way, he kept the capital he needed and could grow his farming business.

Behind the Numbers:

Example:

Note on farm : $500,000 @ 10% interest. Working capital requirement: $200,000. Total needed: $700,000.

Proceeds from 75% LTV hedged portfolio stock-secured loan (HedgeLoan) of $1MM of the stock XYZ: $750,000.

Depending on his interest rate (as low as 3% with our institutional facility), he would conservatively at least $15,000 per year in interest expense on the existing $500,000 note on the farm. He can then invest $200,000 in new land or supplies, pay off outstanding debt, or use the cash optimizing financial management of his firm.

He can participate in upside of stock (or securities, if appreciable) if they rise in value, and freely exercise the default option if necessary.

In addition, he can go to the bank to get financing if he needs it in the future because all of his assets would now be free and clear. The remaining $50,000 could be used as a buffer or for personal applications.

If you'd like to locate an appropriate lender for your securities-based financing, use a major search engine to begin your search.

Return to Solutions (Index)

More on securities finance from Wikipedia here.

The Challenge: Expanding Your Business