Who Are Single Stock Loans for?
While single stock portfolios are often cited as being 'high risk', it's not an unusual position, especially for high-net-worth individuals. Single stock portfolios can arise for several reasons, the most common of which are:
- When wealthy individuals or families own and run one or more publicly listed businesses and much of their wealth is derived from this stock ownership
- Entrepreneurs set up a company that they go on to sell. They often retain a large portion of the company's shares
- Individuals work for long periods in companies that offer stock options or share schemes to employees
In theory, single stock loans are available to anyone who has built up significant wealth tied to single stocks. Lenders will consider borrowers with many different scenarios. How the single stock portfolio came to be is of little consequence to lenders, especially if there is a logical reason for it.
Single Stock Loan FAQ's
How Do Single Stock Loans Work?
In essence, single stock loans are just like a standard Lombard loan where securities are used as collateral by a lender. The lender takes custody of the shares for the loan term and offers the borrower a credit line in return. However, single stock loans are typically more complex to arrange than 'standard' securities-backed lending, where the borrower's portfolio is generally more diverse. Many lenders will view single stocks as riskier collateral than a comparatively more varied portfolio.
Single stock loans remain a relatively niche market area, and mainstream lenders don't always offer this type of borrowing, especially for borrowers seeking significant capital. Enness has access to all lenders in this part of the market and will know which lenders to approach, whatever your situation and financing requirements
Lenders generally like to see liquid and high volume stocks in this part of the market. That said, if you have an illiquid portfolio or stocks with a low trading volume, don't assume lenders will be deterred. It's possible to get a single stock loan in many different circumstances, and a partner like Enness will help you source the best deal.
Your identity, background, wider situation and total net worth can also play a part in whether a lender will offer you a loan and what terms they will offer. As with any securities-backed lending, the presentation of the facts is critical to success. Showcasing your situation fully, accurately and providing lots of detail and context can help a lender offer competitive rates and terms.
Despite the careful assessment of stocks, you will be able to access capital quickly. The underwriting process for single stock loans is relatively quick (especially compared to other types of borrowing). Lenders will move swiftly to make a decision and present terms, particularly if you want to borrow a large amount or have a particular profile.
What Does a Single Stock Loan Cost?
Predictable answer? It depends. Lenders will assess your profile, your stocks, the risk associated with the transaction and the minutiae of your situation on a case-by-case basis. The interest rate you are offered will reflect all these - and more - elements.
Generally, the loan-to-value may well be lower for single stock loans than for a loan collateralised against a more diverse portfolio. The more illiquid your stocks or the more challenging the lender thinks they will be to sell if you default on the loan, the lower the loan-to-value ratio you’ll be offered and the higher the cost of the loan.
Would I have to transfer ownership of my shares to the lender for security of the loan?
Luckily, we have various options available when it comes to leveraging single stocks. One such option allows you to pledge the shares whilst holding them in your own account at the lender's custodian for the duration of the loan, thus you continue to retain full ownership.
What Can You Use Single Stock Loans for?
Just like other types of securities-backed lending, single stock loans can be used for several reasons. Borrowers can use them to create liquidity, buy assets, or purchase a property. Single stock loans can also be used to reinvest to seek new investment opportunities and potentially higher returns than the original shareholding.
Increasingly, single stock loans are also a popular mechanism that allows owners of a very condensed portfolio to diversify investments and revenue streams. Often, individuals or families will use stock loans to expand their portfolio away from a single source of wealth to mitigate risk. At the same time, they can also benefit from exposure to different markets and financial instruments in the hope of generating better yields.
What’s Enness’ Role in Single Stock Lending?
After learning about your financing requirements, situation, requirements, and the stocks you'd like to secure the loan against, Enness will get straight to work. With a complete understanding of what you need, the team will approach lenders and negotiate on your behalf. The negotiations will encompass both the financial elements of the loan and the terms.
Many single stock lenders don't publicise their services, or they require personal introductions. As a result, they may well be out of reach without a partner to make an initial connection and set things in motion. Alternatively, you'll spend a long time trying to connect with the right players, wasting precious time. With access to all the lenders that operate in this niche part of the market, Enness can connect borrowers with 'best fit' lenders quickly and efficiently. After Enness has started the process, you can expect offers within 24/28 hours.
Enness' role goes well beyond negotiations and introductions. Single stock loans are complex to arrange, and the small details matter. Enness acts as a partner at every stage of the transaction, handling all the fundamental elements of the deal on your behalf, troubleshooting and handling whatever we can to ensure the process requires as little of your time as is possible. At the same time, the team will keep you in the loop every step of the way and ensure you're well equipped to make informed decisions. Enness will be on your side to see the deal through to completion and ensure you're getting the outcomes you want.
The bigger picture is particularly important when it comes to single stock loans. You may have personal links with the stocks you're securing the loan against (it's a family business, a legacy company, a firm you've been employed by for many years). There is often an emotional factor that shouldn't be overlooked.
Enness' approach (while focusing on getting you the best deal and the best terms) is not to treat single stock loans as a black and white business transaction. The loan conditions are important, and Enness' team understands that it's paramount that the lender is a good fit and that you're offered the terms that reflect your ambitions for your stocks.
Enness negotiates the best single stock loan rates and negotiates the terms that fit with your vision and personal requirements.
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Guide to Securities Backed Lending
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.
