In order for an industry to thrive, clear and prevalent advantages must made available to the consumer. In the stock lending industry, these advantages are what drive the entire industry.

Consider the following advantages of obtaining a stock loan:

• Be In and Out of the Market at the Same Time.
  
  A stock loan allows the borrower to benefit from a hedge in the event of a market downturn, yet still retain upside profitability should the share price climb during the term of the loan. Simply put, if the price of the stock falls, the borrower has the the non-recourse option of simply walking away from the loan, and if the stock climbs the borrower can pay off the loan keeping the upside. It's the best of both worlds.
  
  
• Excellent Loan to Value's
  
  Stock loans are known for their generous loan to value's (LTV), due mainly to the fact that they are offered by private entities and are therefore not governed by Regulation T or U. Because of this regulatory freedom, a free trading share on a major exchange can realize an LTV up to 85%, with a restricted counterpart realizing up to 80% respectively. Pink sheets and bulletin boards will also achieve excellent LTV's, though not as high as shares trading on a major exchange. Note that the higher the LTV, the greater the stock has been leveraged which is not always in the best interest of the borrower. A prudent lender will base the LTV on several factors and will take into consideration the borrowers specific needs as well.
  
  
• Excellent Interest Rates
  
  Stock loan interest rates can range from sub-prime (some freely trading shares) to prime+1 for restricted shares trading on a major exchange. Be aware that like high LTV's, a low interest rate is not always in the best interest of the borrower. A prudent lender will base the interest rate on several factors and will take into consideration the borrowers specific needs as well.
  
  
• Unparalleled Privacy
  
  Because our stock loans are backed by private banking institutions, they are not subject to the same regulations and scrutiny that a regulated banking institution would come under. Essentially, this means that the only individuals who will know of the transaction will be the lender, the borrower, and any else with whom the borrower chooses to share information, such as counsel.
  
  For top corporate officers or directors holding restricted securities, this benefit has even greater meaning. Imagine being able to leverage your shares without other officers or directors knowing of the transaction, unless you choose to disclose. Consider also the fact that if an insider sells, it is immediately known by all of the shareholders which can drive down the share price. With a restricted stock loan, an officer could get gain tremendous liquidity and leverage and his privacy as well as the stocks integrity are assured.
  
  
• Non or Limited Recourse
  
  Stock loans against free trading securities are always non-recourse, meaning the borrower has no obligation to pay back the loan and can simply walk away from the transaction at any time. This type of scenario could unfold in two circumstances:
  
  

  1. The borrower for reasons which need not be disclosed, no longer wishes the return of the shares, or no longer wishes to continue paying the loan.
     The borrower notifies the lender of his intent, and walks away from the transaction owing nothing and keeping the proceeds from the loan. Note that upon default the loan proceeds may become a taxable event, and the borrower should seek professional advice regarding tax liabilities.
     
     
  2. The share price drops sharply forcing the lender to liquidate the shares to make his position whole. If the the borrower wishes to pay the difference in order to salvage the loan, in most cases he the option to do so. However realistically the borrower most often opts to utilize the non-recourse feature and simply walks away from the loan with proceeds intact.

  
  Stock loans against restricted securities may require limited recourse in order to be a fully SEC, FRB, and UCC compliant transaction. Though the borrower may be held liable for a small portion of the loan, there would be no comparison to the liability he would face in a full recourse environment such as margin.
  
  
• Tax Advantages
  
  A stock loan is indeed a loan and not a sale, which in most cases means that it is not a taxable event. This means that a borrower could realize a sizable amount capital could be made available tax free for as many years as the loan term suggests, however with the non-recourse feature a borrower could make use of the capital now, and not face liabilities for several years depending on the situation. metroBanc will under no circumstance provide legal, taxation, or accounting advice and advises any potential borrower to consult with a professional before making any decisions.
  

• Stock Loan 101 - What is a Stock Loan?
• Stock Loan 101 - The Loan Process
• Stock Loan 101 - Loan Benefits
• Stock Loan 101 - Stock Loans vs. Margin Loans
• Stock Loan 101 - Using Options
• Stock Loan 101 - Use of Proceeds
• Stock Loan 101 - Loan Scenarios

For more information about a stock loan, please contact our office.
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