Unlisted securities lending remains a highly specialized part of the market, and not every provider has an appetite for offering such financing.
Mainstream lenders tend not to cater to these transactions, but smaller and niche players have entered the market to provide this type of loan.
In some scenarios, unlisted stocks can be used as collateral for a loan. In theory, any shareholder with a significant amount of capital tied up in a private business can use unlisted securities-based loans. However, it’s most seen with high-net-worth individuals and entrepreneurs who are shareholders in very successful private companies.
The shift comes as more flexible providers recognize that lots of companies operate successfully as private businesses and going public isn’t necessarily an ambition or a logical “next step” for many of these companies. Only offering loans using listed securities as collateral would cut out a significant number of these potential borrowers, which is why more lenders operate in the space than before.
If you have the right profile and shares in a profitable, high-value company, using your unlisted securities as security for a loan is a real possibility.
Because unlisted securities-based loans use securities in private companies as collateral, the legal aspects of the transaction will need to be considered carefully. Potential restrictions surrounding the sale or transfer of stocks will need to be examined, for example. Other limitations and consequences of using your unlisted equity as collateral for a securities-based loan will also need to be identified and appropriate workarounds thought out. Seeking expert legal advice and working with partners who have a track record with this kind of transaction, will be critical to success and peace of mind.
If you are a sole shareholder with more control over your equity or company, the process may go quicker than if you need to liaise with other shareholders or partners.
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