Did you know that a stock can be lent? This has grown a lot in these times. When you loan a security, you transfer the title as well as the ownership to the borrower. Reselling the stock can be done for a profit. People are really borrowing stock to benefit from this. After the resale there are proceeds that you will get. You don’t just lend the securities to the different individuals. Stock brokers are the one who benefits from this scheme. Having a collateral is important to help you get the loan. This can either be in cash or as a security. The transaction can also be made through the letter of credit.
With the stock loan getting a loan becomes really fast. This means that the stock can replace a security. You can’t just get a loan with leaving of close to the same value of the loan that you are taking. In that case the stock that you have can as well act as a security. The loan are in mainly two types in the terms of how secured they are. When the loan is secured, it is convertible. You can be able to get shares from the same stock. Non-recourse is a concept that is being embraced in the value of the stock on the loan. If the borrower defaults to pay, the stock will therefore turn out to become collateral. There is no point you get to suffer loss on your value of the loan.
If you have ever borrowed you should be knowing about loan hedges. In any case the stock value declines the borrower can exit the loan plan. This can be done without having to damage your credit from the lender. When the loan is still active, there are so many benefits that the stock owner get. They will, therefore, remain free to use their cash on any other investment. With the stock loans, there is a greater flexibility. There are different purposes for which you can use the loan proceeds. The loan is a non-recourse debt. There is a lot of freedom that you get to have through the loan where you can keep the loan proceeds.
One great benefit with the stock loans is that the stock appreciates in value. When using the stock loan, the main thing in the mind of the stock borrower is that there will be an appreciation over long term. You get to profit a lot when the prices start increasing in value. Through the normal margin loans, the maximum loan doesn’t exceed 50% of the value. This is way different with the stock loan where the loan maximization is up to 80% of the stock’s value as in the securities loan.