Characteristics of Stock Loans
Non-recourse are stock loans where borrowers take out using their stock as collateral. Stock loans are normally quite lucrative because of several reasons as we will see in this article. Stock loans charge very low-interest rates because the lenders use the borrowers stock as the security. Secondly, because the collateral is the actual stock, the loan also works as some hedge especially when the markets become volatile; this means that even in a case of default the borrower only stands to lose only the stock that they pledged. By example, the range of normal loans is between 45% to 65% of the current stock market value. In a worst-case scenario, the market is against the stocks, the borrower will only lose 35% to 55% of the value of their stock because they would have already received the loan amount. Additionally, the borrower can access the upside of the appreciation of the stock and also access capital to go on doing other business ventures like investing in real estate.
You can use the proceeds from the stock loans to do other business activities which makes stock loans flexible. Accessing stock loans is fast, they are quickly funded which normally takes less than seven days for an approval. Loan maximization in stock loans is possible meaning that you can get 80% of your stock value in the form of security loan. Comparing stock loans and margin loans you will see that maximum loans don’t go above 50%. We have also seen that stock loans are non-recourse meaning that should the value of your stock go below you stock loan amount, you are able to keep the proceeds from the stock loan and relinquish your stock. Stock loans go up in value meaning that if a stockholder consumes their stock loan instead of liquidating the portfolio with the knowledge that after some time the stock will eventually appreciate. If the stock value goes up you stand to benefit from that rise.
Finally, do you want to keep stock investments as stock investments? You could be in love with the stock picks because you think they are doing well. You may be thinking next year your prospects will be greater, so you don’t want to sell the stock or leave the market. With the existing circumstances you may be at a loss on what to do.
In the above scenarios is taking a stock loan to be your stock investment. This means you will be putting a floor on any possible loss and at the same time keeping your possible gains. This is possible in stock loans. Instead of selling your shares, leave them in the market to work for you.