The definition and uses of the term "stock loan"
by Worldwide Stockloans Our loan program keeps ownership of the secured baStocks can be used as
collateral to temporarily transfer ownership in exchange for a loan of cash,
securities, or bonds. If the loan is not returned, the stocks will be forfeited
as collateral.
Businesses and financial organizations are the most common
users of stock loans, which are
frequently employed by traders who are undertaking short sales. They can also
be a mechanism for a corporation to raise capital without losing control, for
as by taking out a loan secured against 20% of the firm's stock.
It's critical, like with any loan, to fully comprehend the
commitment being made. Consider the following points:
·
If the loan is
not repaid on time, the stocks may be forfeited as collateral.
·
The holder
retains voting and dividend rights.
·
Although the
loan agreement may alter this, in theory, this means that someone having 25% of
a company's shares and a 30% stock loan would be the dominant shareholder.
·
Lenders who
hold shares as collateral continue to charge interest.
·
The shares do
not have to be kept by the holder.
·
Because
shares, like currency, are fungible, the holder simply agrees to repay an equal
number of shares, not the same ones.
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Created on Oct 14th 2021 05:56. Viewed 214 times.