Over the past few years the credit markets across the country have tightened dramatically. This has made it very difficult for the average consumer to obtain short-term personal financing at affordable interest rates. Since the typical consumer can no longer obtain traditional unsecured personal loans, a better option for many people today is to take out a loan that is secured by a stock portfolio.
A stock portfolio secured loan is typically considered a conservative loan for a financial institution, which means that they can provide lower interest rates and fees compared to fully unsecured loans. In most cases, the financial institution will not have any control over the actual investment allocation of the stock, but will have the ability to change the loan terms and loan amount based on the performance of the underlying collateral.
One of the leading providers of stock-secured loans is Equities First. Equities First have been providing stock-secured loans, and other flexible financing options for nearly 15 years. In that time period they have completed nearly $1.4 billion in total loan volume, which has been provided to businesses, hedge funds, and individual investors. The company offers flexible options, which often provide better terms than when compared to traditional margin accounts.
One way that a stock-secured loan can be a better option is that it is typically non-recourse. When taking out a margin loan from a stockbroker a person will normally have to personally guarantee the loan. This means that if they end up losing the full margin balance of the account, they will be held personally liable for the excess loss. With a stock-secured loan, the liability of the loan will be limited to the value of the stock. This means that if the loan is not paid back as agreed, the lender will have the ability to take control of the stock and sell it to cover their losses and costs associated with the loan. In some cases, you will also be able to borrow a larger amount of money with a stock-secured loan, as opposed to a margin account.