These frequently asked questions along with answers are being presented to demonstrate much-needed transparency in this industry, while also providing prospective clients with information specific to our financing methodology. These are questions that have been asked throughout the years by clients interested in knowing more about the process.
These answers, as the reader will come to understand, are very transparent and often times not discussed with clients using other financiers in this industry. We believe differently—that a client’s comfort is most important, which begins immediately in the relationship.
We do not have basic terms, and we do not know our clients at this early step in the process. We offer our time and services to bona-fide, pre-screened clients. Our terms are custom tailored for each client—we do not take a “cookie-cutter” approach to provide solutions. As a result, prior to offering any terms, we require a CIS and Intake document, along with a current account statement. By receiving this up-front, we save time—both yours and ours. This document also gives us important information, including:
No. Should there be a default on the loan, the onus would be upon the client’s broker-dealer to deliver the collateral shares to our financier, which many times is problematic, as no broker-dealer wants to reduce the assets they hold. The simplest and most effective solution is that the collateral shares must be held in a facility where our Financiers will have direct control of the shares’ disposition upon default without any obstacles.
Our Financiers will likely trade the shares, and reserve the right to manage the collateral as they see fit. An exception might occur within a unique loan structure, such as a high interest, month-to-month short term loan, with specific language in the agreement that the shares will be held for the duration of the loan. Any such discussions will occur directly between our Financiers and the borrower.
It is always specific to the loan agreement. Typically, once the loan has been paid back according to the agreement, shares are returned in less than ten (10) days, barring any unforeseen delays.
Our Financiers have a unique business model not employed by any other finance group in the space. They simply have the most effective method of managing the collateral. The details of this model will be discussed directly between our Financiers and the borrower.
Typically, if the value of the collateral drops below a specific percentage of the value determined at loan closing, usually around eighty percent (80%), a default is triggered. In most cases, should there be a default due to a drop in price, the borrower may have the option to either pay a cash difference, provide the Financier with more collateral shares, or simply walk away from the loan with no further action required and no negative consequences. The options are specific to the loan agreement signed by the borrower.
There are strong differences between our financing and the rest of the industry:
There are two scenarios that present risk to the client:
The Financier goes out of business or becomes insolvent. In this event, if the Financier was unable to repatriate your shares, the borrower would still have received as much as 50% or more of the value up-front, meaning the borrower would have the potential to lose as much as 50% of the value of the shares. This is an extremely unlikely scenario because of the nature of their business model.
The loan defaults (either from a drop in price or a contractual default). In this case, the outcome is the same. Because the client received as much as 50% of the value up-front, the potential loss in the event of a default would remain the same at 50%.
So, in other words, the risk to capital is virtually the same—however, the mitigating factor is much more likely going to be the borrower, directly.
The process from CIS until a signed loan agreement can take as little as two (2) days. Loans with transfer of ownership (title) can fund as quickly as one or two days, if executed via DVP, or can take as many as five days after the receipt of the collateral shares if the pricing is based on a trading average. Loans with no transfer of ownership (title) typically fund within 24 hours from when the shares are placed on account (in the borrower’s name) with our Financier at their brokerage/institution.
So, in other words, the risk to capital is virtually the same—however, the mitigating factor is much more likely going to be the borrower, directly.
Titling of the collateral shares is at the discretion of the client, as both options are available. There is no difference in any respect between a loan where the title is transferred or a loan where the shares stay in an account in the borrower’s name at our Financier’s brokerage/institution. In either case, the collateral shares will still be under the control of the Financier. The process of a no-change-of-title is different as it requires an account to be opened at our Financier’s brokerage/institution and approved by Compliance, which can take a week or longer to set up. A title transfer transaction can be wrapped up and funded in a matter of a couple days.
An Intake Form, along with a completed CIS form and a copy of your current account statement, showing the proposed collateral shares.