Case Studies & Articles
In some scenarios, unlisted stocks can be used as collateral for a loan. In theory, any shareholder with a significant amount of capital tied up in a private business can use unlisted stock loans. However, it’s most commonly seen with high-net-worth individuals and entrepreneurs who are shareholders in very successful private companies.
Unlisted stock loans remain a very specialist part of the market, and not every lender has an appetite for offering such financing. Mainstream lenders, in particular, tend not to cater to these transactions, but smaller and niche players have entered the market to provide this type of loan. The shift comes as more flexible lenders recognise that lots of companies operate successfully as private businesses and going public isn’t necessarily an ambition or a logical “next step” for many of these companies. Only offering loans using listed securities as collateral would cut out a significant number of these potential borrowers, which is why more lenders operate in the space than before.
If you have the right profile and shares in a profitable, high-value company, using your unlisted stocks as security for a loan is a real possibility.
Lenders will assess your equity carefully to decide if they are willing to use your shares as collateral for a loan. As well as your stocks (and their value), they will also look carefully at the business, assessing profitability, the industry you operate in, shareholding structure, company management, demand for your products or services and your competitiveness in the market. While it’s always the last resort and not the outcome anyone wants, the lender will also want to assess how easy it would be for them to sell your shares (or the business, if you are the sole shareholder) if you default on the loan.
Loans against unlisted stocks are complex to arrange. While lenders will assess various scenarios, this type of financing is usually only worth the effort if you want to borrow a significant amount. However, the loan-to-value ratio offered is likely to be lower than many other types of borrowing because of the risk the lender takes on using unlisted stocks (often concentrated in a single company) as collateral. The value of your stocks will need to be considerably more than the amount you want to borrow to give the lender enough margin for comfort.
The exact criteria you and your stocks will need to meet to be eligible for a loan will vary from lender to lender. Presenting lenders with a complete and detailed overview of your situation is central to being accepted for this type of loan and getting the most competitive terms. Enness will identify and put forward the data, facts and information that will help a lender make a quick decision. This will include sharing details about the other information that can add weight to your request: your profile, net worth, broader financial situation, and other elements (family wealth, other assets), which can also act as motivators to help a lender offer a deal. Enness will know which to highlight and how to use these elements in your favour.
If the lender is prepared to grant you a loan, at a high level, the process is relatively straightforward: the lender will take custody of your shares, and you will be offered a credit line in return. You can use this capital for various reasons, although purchasing property or other assets, reinvesting in the stock market, or reinvesting in your company are common themes.
Because unlisted stock loans use securities in private companies as collateral, the legal aspects of the transaction will need to be considered carefully. Potential restrictions surrounding the sale or transfer of stocks will need to be examined, for example. Other limitations and consequences of using your unlisted equity as collateral for a stock loan will also need to be identified and appropriate workarounds thought out. Seeking expert legal advice and working with partners like Enness, who have a track record with this kind of transaction, will be critical to success and peace of mind.
If you are a sole shareholder with more control over your equity or company, the process may go quicker than if you need to liaise with other shareholders or partners.
The process with any securities backed lending always starts with Enness listening to what you are looking for, what financing you need and your goals. The conversation will help paint a picture of your ambitions and who are likely to be the best lenders for your situation.
Enness will also ask questions and request more details about the unlisted equity you want to use as security for a loan. Lenders will need this information to make an offer, but it’s also essential that Enness understands your wishes. The terms of the deal (including the level of control the lender has over your stocks and what they can do with them during the loan term) are just often as important as the cost of the loan. Enness needs to know these details upfront to negotiate the best rate and the best terms for you.
Enness will then approach lenders and negotiate offers on your behalf. Enness will help you understand what you have been offered and what is likely to be the best deal for your situation and objectives.
Unlisted stock loans are challenging transactions. You’ll want to work with a party that’s on your side and is working exclusively in your best interests. With access to all the lenders in the space, Enness will be able to help you secure the best financing with the terms that meet your requirements.
Get in touch to discuss unlisted stock loans in more detail and to have an informal chat about how they work, restrictions and if they are the right option for you.Schedule A Callback
Securities-based lending provides ready access to capital. From purchasing a property, buying assets, investing in stocks or growing a business, you can use securities-backed lending (also known as Lombard loans) for various purposes.
Securities-based lending can be an exceptionally useful tool for creating liquidity quickly. As well as more “traditional” Lombard loans against a diverse portfolio of liquid, listed securities, Enness can also broker more unusual deals. This includes sourcing and negotiating loans against unlisted stocks, single stocks and pre-IPO loans.
Lenders in this space provide funding while using the securities available to a borrower. These loans are typically used to access liquidity quickly, allowing investors to take advantage of time-sensitive opportunities.
Building up a representative portfolio to gain access to this lending space change can be challenging. Enness has a proven track record in acting in clients’ best interests and negotiating the best outcome on their behalf.