investment bank logoinvestment bank logoinvestment bank logoinvestment bank logo
  • ADVISORY
    • BUY SIDE M&A
    • SELL SIDE M&A
    • CAPITAL RAISE
    • BUSINESS VALUATIONS
  • DEALS
  • ABOUT
  • CONTACT

Using Public Stock as Collateral for a Personal Loan

Because liquid, public stock is an acceptable form of collateral, it can easily be used for both business and personal loan guarantees against the unlikely event of default. A founding shareholder of a public company may wish to secure a large, personal loan against the value of the public stock. What for? Whatever he or she deems is personally beneficial. Such a loan could help to supplement needed or even frivolous expenses. What follows are some of the benefits and downsides of loans against the value of public stock.

No Personal Guarantees 

Unlike a typical collateralized debt obligation on an individual, a public stock loan that works against the value of your company’s public stock is non-recourse. Wikipedia has a great article on what it really means to have a non-recourse loan. This is very similar to the type of lending that occurs with self-directed IRA investing where the arms-length characteristic of a deal bars the lender from extracting any blood directly from the borrower. In other words, the loan is, in most cases, 100% dependent on the

The Downsides 

There is really only one downside. If for some reason the borrower is unable to make the regular loan payments or otherwise defaults on the loan, the lender may exercise his/her option to take the collateral–your company stock. If your loan is substantial and your holdings in the public company stock are substantial, then the hit could be detrimental to one’s net worth. If you’re able to keep up with your debt obligations, then upside possibilities of such a loan can be substantial, providing expenses for living now. They’re particularly helpful if the value of your public stock continues to rise, making the loan to value ratio of the stock, even lower.

Who Qualifies? 

Keep in mind, such obligations are typically only available to founders or those with significantly large ownership in the company’s stock. Such loans are reminiscent of loans provided to the company directly. And, while such loan amounts are typically smaller than that allotted to the company, they can be much more substantial and personally safe for the borrower, protecting them from any personal liability against future payments. This is particularly helpful, especially if the need for money outweighs any of the potential risk involved.

We’ve a number of partners that provide these types of loans against the value of your public company stock. For years this market was a dispersed and eclectic mix of players and rightfully so. It caters to a very small and very typically flighty niche. But the right lenders love these types of loans.

  • Author
  • Recent Posts
Nate Nead
Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this Broker-Dealer and its registered investment professionals on FINRA's BrokerCheck.
Nate Nead
Latest posts by Nate Nead (see all)
  • Covid-19 Impact on US Private Capital Raising Activity in 2020 - May 27, 2021
  • Healthcare 2021: Trends, M&A & Valuations - May 19, 2021
  • 2021 Outlook on Media & Telecom M&A Transactions - May 12, 2021
Nate Nead
Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this investment professional on FINRA's BrokerCheck.

Related posts

May 27, 2021

Covid-19 Impact on US Private Capital Raising Activity in 2020


Read more
May 19, 2021

Healthcare 2021: Trends, M&A & Valuations


Read more
May 12, 2021

2021 Outlook on Media & Telecom M&A Transactions


Read more

Get in touch

[]
1
Step 1

keyboard_arrow_leftPrevious
Nextkeyboard_arrow_right


investment banking Logo

Services

  • M&A Advisory
  • Sell-Side M&A
  • Buy-Side M&A
  • Raise Capital

About

  • About Us
  • Our Deals
  • M&A Blog
  • Contact Us

© Copyright Deal Capital Partners, LLC.

Privacy Policy | Terms of Service | Listing Agreement

This does not constitute an offer to sell or a solicitation of an offer to buy any securities and may not be used or relied upon in connection with any offer or sale of securities. An offer or solicitation can be made only through the delivery of a final private placement offering memorandum and subscription agreement, and will be subject to the terms and conditions and risks delivered in such documents.

M&A advisory services offered through MergersandAcquisitions.net. Securities transactions are conducted through Four Points Capital Partners, LLC (4 Points), a member of FINRA and SIPC. Deal Capital Partners, LLC and 4 Points are not affiliated. Check the background of this Broker-Dealer and its registered investment professionals on FINRA's BrokerCheck.

An Invest.net Partner