Many people with big ideas for companies just need the extra push to allow them to rise to their dream. It is unfortunately the case that many people have had to put up their homes as collateral so that they can get a loan for the amount that they need.
This collateral is one of the reasons why many entrepreneurs end up falling short in their business ventures. Whether they do not own a home to use as collateral, or they simply cannot risk their home for their business idea, many of these people are left borrowing little amounts that will not allow them to pursue their bigger ideas.
Luckily, something called a stock loan helps small businesspeople pursue their goals. But what are stock loans, and how can you use them to your advantage?
Stock Loans
If the person holds stock in anything, most stock loan companies are willing to let them borrow against its value. This is a form of lending also called securities lending.
The value of the loan is dependent on the characteristics of the stock, such as the number of shares that you hold and the price of it. The lending company holds the securities as collateral while the borrower gradually pays back the loan amount.
Once the loan is paid back, the stock is returned to the borrower.
Mostly, this method of borrowing is ideal for those who need access to capital but are unable or unwilling to sell their securities. This will allow them to receive a loan to start up whatever investments they want without losing the value of their securities.
Who Will Qualify?
Anyone who owns a non-marginable stock is able to apply for securities lending. Many securities lending companies are willing to fund loans of up to five million dollars depending on the value of the person’s securities.
But that is not the only advantage of stock loans—here are some more!
No Credit Report Required
Most securities lending companies are only interested in the value of the stock that you are using as collateral. This means that there is usually no reason for a credit check when you are borrowing.
Not only does this give those who have a lower credit score the opportunity to raise it, but it also prevents lowering the credit score any further. Unlike with marginal loans, with stock loans, you are able to walk away at any time.
This means that you will not have to bring in any additional collateral or cash as well.
Creates Liquidity
For most securities, the money is not liquid. This is why securities lending is a great idea for those who need to borrow.
Stock loans allow the borrower to create liquidity in their business without having to worry about selling their stocks, which are sometimes pretty tricky to sell.
Borrow Responsibly
As with any loan, stock loans should be well thought out, so make sure that you are certain that you will be able to pay back your borrowed amount before you take it, or you risk losing the securities that you already held.
For many, using their securities as collateral is a gift, but if you are not careful, you could end up losing a big part of your holdings.
Securities lending is definitely something that should be considered by those who are in need of cash for their businesses. It allows stockholders to turn their stock into liquid cash that will allow them to invest further without having to risk their homes and other belongings.
As long as you borrow responsibly, stock loans could be a great way to build up your company.