Stock Loan and Securities Lending Explained
Do you suddenly find yourself in a financial bind and wondering which way to turn? Has an urgent need for money suddenly reared its head throwing you into a quandary? This article will help you find a solution to your financial problem by way of explaining all about stock loan options and how you can raise money on your securities.
Stock loans are nothing more than a cash advance given on the value of stock that you hold in a company. None of us want to outright sell our stock just because we have an urgent need for finance. In such a situation, you can use your shares to raise a stock loan – you will have to put up your shares as collateral for the money being loaned to you. It is always possible that the company in which you hold the shares will be willing to advance you the money; if this is not an option you can go to a stock finance lending company that specializes in securities lending and stock finance loans.
There can be any number of reasons why you need money as urgently as you do and stock loans are one of the best options to get a loan without losing your stock. Once you repay the loan, the stock you put up as collateral is retuned to you and the shares belong solely to you. You will need to discuss the terms of the loan, interest rates and how dividends will be paid with the lender. You have the option to simply apply the dividends to the lending company in lieu of paying interest.
Securities lending is a whole different ball game, where the transaction takes place when the owner of the securities lends them to the borrower, who provides collateral equivalent to the market value of the securities together with an added margin on the market value of the securities. This type of financing option is generally used as an investment strategy whereby investors use their securities to generate additional revenue. The collateral that is acceptable in this type of lending can be in the form of cash, government securities, foreign securities and letters of credit.
When we talk about stock secured loans, it refers to financing at a relatively low cost with collateral put up to secure the loan. The collateral used for this type of loan can be a home, business, automobile and stock certificates. In this way you get the required cash very quickly without losing your savings.
Any type of stock loan that is availed using your stocks or securities as collateral has an element of risk because you don't receive 100% loan value on the stocks or securities, which means you are risking more than you receive. When considering a stock loan, stock secured loan or securities lending it is always advisable not to rush into the situation without fully understanding the terms and conditions applicable. Research the internet and ask questions of the lender to learn about the step you are planning to take, then make an educated decision. Hopefully this article will serve to enlighten you on the subject of stock loans.
