What To Know Before You Accept A Margin Loan From A Bank

If you are looking for financing secured against your publicly traded shares, there are some important things to understand before you choose a margin product from a bank.

Margin loans come in many forms besides the standard margin product, they are also available from the Wealth Management divisions as Securities Backed Loans and Lombard Loans. Regardless of what it is called, they all have one major thing in common, which is that they are Full Recourse Loans.

This means that in order to qualify for the loan, you must meet the following criteria:

1. Have good quality credit history (individual or corporate)
2. Have collateral that meets the minimum requirements for use
3. Collateral should be a portfolio rather than a concentrated single position?
4. Provide personal or corporate guarantees to repay the loan in full
5. Provide information on other assets that you own
6. Be an established client (for Wealth Management products)

One you qualify, the next thing that you need to understand are the following:

1. Lender can do what they please with the collateral, including shorting the shares (regardless if outlined in their loan agreement)
2. Margin loans are typically restricted for the use of trading and making additional investment using your lender, SBL’s and Lombard Loans are typically non-purpose loans
3. Interest rates are variable, which means if your local rates go up, so does you loan rate
4. Fixed annual rates are sometime available, but are typically double digit rates
5. If your collateral loses value and triggers a margin call, you typically have 1 banking day to resolve this by adding more shares or paying down the loan balance
6. Should you fail to resolve a margin call, the lender will not only liquidate your collateral, but they will freeze any other assets you have with them as well as initiate legal and collection actions against you. This can include the forfeiture and sale of other assets to settle the loan balance
7. Margin products are typically disclosed by the lender to the market based on your reporting requirements as a shareholder
8. Depending on what market your lender is based, they may limit the loan amount based on their capital allowances which can mean it will be difficult to obtain a loan greater than USD$5 Million or more

Unlike margin products offered by banks, Lane Hill Capital’s Non-Recourse Securities Finance products offer a number of benefits over them which include:

1. 100% Non-Recourse structure, meaning no personal guarantees required and loan is based on the quality of the collateral
2. Your credit history and other assets are not in jeopardy should you face an unsettle margin call, just the collateral provided is forfeited
3. Shares that do not qualify for margin loans maybe accepted
4. Large single positions not accepted by banks are considered
5. All transactions are private, any required public disclosures are the responsibility of the borrower
6. Loan amounts of USD$1 Million and up are available
7. Because this is private money, low fixed annual interest rates are offered
8. Higher Loan to Values (LTV’s) are offered compared to margin products
9. Faster qualification and funding is possible since personal/corporate credit checks are not performed (other than a basic KYC process)

There are a number of other benefits offered by our Non-Recourse loans and we are happy to discuss your situation and concern to determine how our loans can best meet your needs.

For more information or to apply for one of our Non-Recourse Securities Finance products, please contact:

Michael Rowe

Loan Advisor & Business Development Specialist

Lane Hill Capital

[email protected]

Referrals from Agents are accepted and fees are protected.

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