Loans against stock

by Michael Wolfman

Have you ever done a margin loan against securities? If you have, you already know what happens if the stock borrowed against drops in price! If not, then you need to know what borrowing on margin and margin calls are! First, margin is defined as the difference between the market value of securities and the face value of a loan against such securities. Brokerage houses lend money to customers who hold positions in “marginable securities.” Bulletin board and low priced listed securities usually do not qualify for margin loans. A margin call is “a demand by a broker that a customer deposit enough money to bring his margin up to the minimum requirement set by the SEC. This “call” is made whenever adverse price movement has caused the stock position to go below the prescribed maintenance level.
A new program has been created that uses securities as collateral but has no margin calls. Simply stated, this new program offers a private, non-recourse loan of between 30 and 80 percent LTV on the equity of securities, without margin calls, and that’s probably the most important aspect of the program. Similar to an equity loan on real property, the security for the loans are restricted 144, aged affiliate or non-affiliate, or free trading shares of companies trading on all U.S. and major foreign exchanges. LTVs are subject to minimum stock prices (sometimes as little as five cents per share) and minimum trading activity as well as adherence to SEC rules and regulations governing such transactions. These loans allow individuals to access the funds available through those stocks without actually selling them.

[More information about the qualifying securities is available at:
U.S. Securities and Exchange Commission — www.sec.gov/
Latest SEC Rulings — www.sec.gov/rules/finrindx.htm
Rule 144 — www.sec.gov/rules/final/33-7390.txt

A loan against stock is an ideal solution for COOs, CEOs, CFOs, accountants, attorneys, and common shareholders who may have already exausted other avenues of raising capital. These folks may need to raise money quickly and privately (no filings or registration is required for these transactions) for either business or personal investment. Stock loans can also serve as a hedge for current portfolio positions while recipients gain easy access to needed capital resources in as few as five business days.

Here’s how it works: Let’s say you refer a client who is CEO of a bulletin board company with low revenues but a great story. The stock is trading around 80 cents on the bid with decent average daily trading activity. Under this scenario, a one- to three-year non-recourse, interest only loan against the equity of the stock could be arranged. The borrower would make quarterly interest only payments, at prime rate or prime plus one, for the life of the loan with no principle due until maturity. If the borrower wishes, the loan could be paid off after the first year and the shares returned. At maturity of the loan, if the situation warrants, the loan could be rolled over for an additional one or two years. If the stock moves over 80 cents a share and the borrower is in a positive cash position, he can pay off the loan and get his asset back. On the other hand, if the stock is trading lower than 80 cents, he can walk away with no further liability or responsibility whatsoever. The borrower may, if so inclined, repurchase shares at the lower price offered on the market.

While this concept may seem a little out of the box to you, let me assure you that it isn’t. Whether dealing with securities trading on NASDAQ or the Hong Kong Exchange, over 90 percent of these loans are predominantly executed for officers and directors who have held their shares closely for years and are in exactly the position stated in this example.

To get the ball rolling, the borrower has his lawyer prepare an opinion letter stating only the following: the status of the shares, the status of the shareholder, and the date the stock was issued. This opinion letter and the stock certificates are sent to the borrowers transfer agent who will read the opinion letter, remove the legend, and return the stock to the borrower, legend free. If there is no legend, this process is avoided.

Upon receipt, subject to prior agreement between the parties, the borrower transfers the securities to the lender. Within 72 hours of the transfer, the loan is closed and the funds, less the broker fee, are wired to the borrower, completing the transaction. As stated above, since there is no selling or intent to sell the securities to market, the lender does not do any filing of forms 4 or 144.

Advantages to borrower
Borrowing against stock allows the client to access heretofore unavailable capital in a private transaction without having to sell securities to market. With a stock loan, the client gets tax benefits that come from not having to sell securities while retaining the profits of the pledged position should the stock price rise in value! Borrowers enjoy the freedom of walking away from their loan with no obligations should the share price decrease in value. This allows borrowers to make proper use of assets while waiting for performance and to borrow from 35 to 80 percent of stock equity with no margin calls.

They can hedge portfolio positions should the asset move against them, obtain funds in as few as five business days under very favorable terms and conditions on a non-recourse basis with no margin calls, and obtain funds in completely private transactions to use for any purpose.

Lean Healthcare Solutions

Technological advancements have come at a high cost to the very institutions that provide the daily care to millions of patients each year. The challenges of today --- increasing costs, complex regulatory environments, rising error rates, labor shortages in key sectors, and the aging baby boomer population --- have made it necessary to look for new, proven methods of improving healthcare while at the same time reducing costs through the elimination of wasteful processes.

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Medical Factoring

Medical receivables are becoming the priority for any medical practice. Today's medical providers are faced with greater challenges than ever before. An evolving economy, spiraling practice costs, and greater demands on cash flow. No longer can healthcare professionals depend on efficient operations alone to secure a successful practice. Receiving full reimbursement for services is more difficult than it was last year. And current projections show that the worst is yet to come. Under current insurance system, a myriad of complex Medicare and other insurance regulations and paperwork has engrossed today's medical practice. This has resulted in perpetual problems in cash flow due to delays in receiving insurance and Medicare payments. This situation has been further magnified with obstacles like increased intervention and restrictive banking policies. Thus it has never been more imperative that bills are collected on time.

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What if we do business with Governments and their Agencies?

Government Receivable Factoring is available to companies doing business with local (municipal), county, state, and federal governments and their agencies. Boards of Education, Vocational Schools, Technical Schools, Colleges and Universities also fall under the heading of Government Receivable Factoring although some may be privately operated. Some funding sources have indicated their statistics show, at times, that the amount of invoices submitted to them for government receivable factoring often is greater than the total value of invoices from all other clients in corporate America. Usually a contract with a 'government agency' will contain special clauses i.e. progress payments, retainage, etc. A typical 'government receivable factoring agreement' provides for these unique requirements so that invoice factoring (funding) can be accomplished in a timely and satisfactory manner. Government Receivable Factoring is available, as well as accounts receivable financing; factoring accounts receivable, accounts receivable factoring, medical accounts receivable financing, invoice factoring and medical factoring.

Government Invoice Factoring

Peacock Capital has the experience in factoring government receivables for local, state or government contracts. We know that these agencies have unique ways of handling your invoices, and—as part of our government factoring—we will work with them to process your invoices in the fastest way possible.

Peacock Capital is experienced in funding government receivables under the Federal Government Assignment of Claims Act.

IS INVOICE FACTORING MORE EXPENSIVE THAN OTHER SOURCES OF FINANCING?

Some people may try to suggest that invoice factoring is more costly than other types of financing. However, utilized in the proper way, factoring can be quite cost-effective. Here are some options:

Knowing the typical payback period of customers will allow a business to factor an invoice at the right time along its payment cycle, and thus reduce the cost to that business. For example, if a customer usually pays on the 40th day, a business might want to factor the invoice on the 20th day to limit the per diem fee charged.

With the funds it receives from invoice factoring, a business can take advantage of early payment discounts offered by their suppliers. For example, a business might be able to save 3% from its supplier if it pays within 15 days.

Also, with more working capital, businesses have the capability to purchase higher volumes of supplies, thus making them eligible for volume discounts from suppliers.

A business can stop offering its customers early payment discounts since it receives its funds immediately from factoring.

A business could modify its prices to offset any fees incurred from invoice factoring. It could also increase its prices by a percentage and offer an early payment discount at the same percentage to those customers who pay within a given period. This way, timely paying customers would pay the original prices, while late paying customers would offset any factoring fees.

HOW CAN MY BUSINESS BENEFIT FROM INVOICE FACTORING?

-Focus on business operations instead of cash flow concerns
-Increase production and sales
-Take advantage of trade discounts, or those discounts offered by suppliers for early payment
-Meet payroll or payroll taxes
-Finance expansion without debt
-Fund marketing or e-commerce projects
-Pay off outstanding debt
-Improve credit rating with timely payments
-Improve balance sheet by increasing cash and decreasing A/R
-Eliminate need for outside investments, such as loans, credit cards
-Position business for outside investment, such as attracting bank financing or SBA loans

No Margin Call Stock Loans

Hedge current portfolio positions and gain access to capital resources through loans against free trading, aged affiliate or aged non-affiliate securities. Make proper use of your assets while waiting for performance and hedge your position should the asset move against you.

We'll secure non-recourse, no margin call stock loans for 35% - 90% of your stock position's value.