How Do Unlisted Stock Loans Work?
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.