Stock Loans and Stock Lenders

If you take a stock loan, you will pledge your stocks to your lenders for the duration of the loan. While you still own the stock, the lender controls them, using them as collateral for the finance. You will lose ownership of your stocks which will be transferred to the lender if you cannot repay the loan or meet the repayment schedule. 

In return for pledging your stocks, your lender will offer you a credit line. You don't have to use this immediately. Instead, you can use it any time during the loan period, as and when needed. However, if you do want to draw down funds, you will need to do so and repay the loan capital by the time the loan comes to an end. This credit line is very useful to most borrowers as it means you can arrange it in advance, so you have immediate access to liquidity as soon as you need it. 

Stock loans last from a few weeks up to about three years. 

You can use a stock lending for almost any purpose – it's a flexible type of finance. Bearing in mind that there's not any specific way to use this type of loan, some everyday use cases for stock loans are:

• To raise capital to buy a property: your main home or an investment property
• To create liquidity to reinvest in the stock market
• To access money to pay off or consolidate debt
• To be able to diversify your assets by purchasing alternative asset classes or simply spreading risk
• To generate cash to grow a business you have an interest in or that you own

You can use stock loans in lots of other scenarios, too. Lenders are open to how you will use your credit line, as long as you can show how and why you want to use this type of finance. Provided you can demonstrate a good plan that supports your wish to borrow, stock loans are a great way of accessing cash to make something happen or realise a goal. 

Knowing the benefits and risks of this type of lending is essential if you want a stock loan. Below is a general overview of these, but we also suggest you get in touch to have a chat. We'll talk you through this type of finance in more detail and advise you on your personal situation.

Advantages

• You can access capital very quickly via stock loans, often in just a few days – especially if you only want to borrow a small amount. Large loans can take a little more time to broker, but you can still get a credit line in just a couple of weeks
• Stock loans are available and can be used in lots of different ways. You can access a few thousand pounds in cash to cover a gap in income to buy a house or reinvest in stocks – and anything in between
• Stock loans are competitively priced. They can also be cheaper than other types of lending and are much faster to arrange than a mortgage and different types of finance
• You can use lots of different types of stock as collateral – everything from stocks you own in a private company to listed securities

Disadvantages

• The amount you can borrow against your stocks can be different from lender to lender. Because lenders need to factor in that the value of your stocks might drop during the loan term, LTV is usually lower than other types of finance. This can be balanced by offering additional security or putting more stock forward
• You will always need to consider the possibility of a margin call. This is when the value of your stock drops below a certain amount. Lenders don't like this as it means there's more risk for them, and they don't have as much collateral against the loan as they'd like. If your lender enforces a margin call, you will need to repay the loan or put forward additional stocks as collateral. This is one of the most important reasons why you should only consider a stock loan if you are in an excellent financial situation overall: you need to be able to cover a margin call 
• Most lenders also restrict how you can use stock loans. This affects two things: what you can do with the loan and what your lender can do with your pledged stocks. What this means will depend on the type of stock you have put forward as security for the loan. Lenders' restrictions on listed securities might be very different from stock in a private company, for example. You'll need to understand what your voting rights are, what happens to dividends, short selling clauses and so on. We can talk you through all the different things you need to consider

If you're not familiar with stock loans, or you've never used this type of finance before, here are some top tips to get you started:

• One of the challenges if you want a stock loan is knowing how much you can borrow. There are many LTVs stated on the internet: everything from 30% to 60% or more. Sometimes these figures are correct, and other times, they will be unrealistic based on your situation. It's better to talk it through and get personalised advice so you know exactly what you can borrow and make sure that fits with your plans – and do this as early as possible! If you're considering taking out a stock loan, the best thing to do is get in touch. Personalised advice is the only way to get an exact answer on what you can borrow. 
• You'll want to make sure you can show lenders how you will use your stock loan. Lenders are open to lending in lots of different scenarios. Still, it won't be enough to give an outline of your plans without being able to provide more information on the specifics. For example, if you want to borrow against stock to create capital to invest in a business, lenders will want to know your plans, how you will be using the capital and what kind of investments you will be making. 
• You can use lots of different types of stock as collateral for lending. If you want a small stock loan, lenders usually want to see very liquid, A-grade securities to lend against rather than a portfolio of less liquid or lower-grade stocks. However, you can also lend against pre-IPO stock, stock owned in a private company and a single line of stock. In these cases, you'll usually only be able to borrow a larger amount rather than a few thousand pounds, and you will find that a broker is invaluable