Though many people will tell you that stock-based loans and margin-based are more or less the same because they both engage in the practice of using securities for collateral, there are some major differences between the two they are overlooking that you should know about.
Stock-based loans and margin-based loans
For instance, borrowers of are not required to be pre-qualified to receive a stock-based loan, whereas borrowers cannot receive a margin- based loan if they do not qualify beforehand and provide an acceptable reason for needing the loan. Obstacles borrowers would face when trying to receive a loan from a bank. A stock-based loan can be used for any purpose the borrower chooses without any restriction.
Borrowers also have no obligation or ties to lenders with stock-based loans by way of a non recourse feature that can be found in most stock-based loans. Borrowers are allowed to keep the initial loan proceeds even if they decide to just up and cut ties with the lender of the stock-based loan because the value of the stock decreased. Something that really draws the attention of investors and borrowers who are looking for as little risk possible when choosing an alternative financing solution. Market fluctuation is bound to happen so the key is being prepared when it does.
One thing that is synonymous for both stock-based loans and margin-based loans is how they’ve both benefited from the financial crisis in 2008. Peoples loss of faith in banks have led to the seeking out alternative shareholder financing solutions like the two aforementioned. Banks also seem to have loss a bit of faith in people. Since the economic collapse banks have made it even tougher for individuals to qualify for credit-based loans. Their lending criteria has tighten substantially.
Companies like Equities First Holding has also taken advantage of the new age economic climate. Equities lending has never been so accepted by individuals, as an alternative to credit-based loans.
Equities First has become a prominent alternative financing solution since its founding in 2002, becoming a world renowned company. Equities First has 650 successful transactions under its belt worth more than $1 billion today.
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