Hi Everyone,
Thanks for joining my business network and becoming one of my trusted sources for your business referrals. I know you'll provide all of my leads with outstanding service. I hope you'll think of me when you come across people who have Private Equity,Federal Grants or Commercial loan needs.
Let's try to keep in touch. We can send each other messages on what we're working on. This can help us identify new referral opportunities for people looking for our services. See you !
Warm Regards,
THOMAS DUFFY
Venture Capital International llc
NEW MILFORD, CT
860-350-4440
Tuesday, May 18, 2010
Friday, May 14, 2010
structured capital loans
For businesses that cannot provide sufficient collateral to secure a commercial loan, a complex and multi-level approach to structuring the transaction makes it possible to successfully receive venture capital funding, without any collateral from the client. This category of capital procurement requires extensive inside financial industry knowledge, legal and negotiating expertise, and direct, active professional support.
Working with financiers to structure conditional purchase of discounted collateral and other guarantee instruments, our Strategic Alliances can reliably obtain full, once-source funding from venture capital lending banks. The core of this mechanism is third parties, usually other banks, financial institutions or insurance companies. These collateral providers either partially or fully back the loan from the source, with little or no risk to the receiving company.
Licensed financial institutions and a London-based, international law firm are the direct legal representative and consortium of investor-depositors who are prepared to purchase the collateral instruments for our clients. Our London-based international law firm alliance is also a licensed Escrow agent for distribution of deposit funds and loan funds. For this reason, our Strategic Alliances are recognized by cooperating lending banks as a “Collateral Provider”, allowing them maximum control over management and support for the process.
Reliable Results for Investment and Project Financing
The reliable procurement of capital funds is not a myth, but an unavoidable reality. The mission of funding sources is in fact to give working capital, not to withhold it. They are under significant pressure from contractual obligations with constituent investors, pension funds, trusts or even government agencies to make active use of funds to realize gains. Under performance or inactivity results in damage to the source’s reputation, and even loss of rights to manage the entrusted funds.
Preparation of Projects
Applying extensive professional resources, intellectual property, and effective strategies, it is only a matter of time before a professional services firm obtains an approval and offer from a source on favorable terms.
Working with financiers to structure conditional purchase of discounted collateral and other guarantee instruments, our Strategic Alliances can reliably obtain full, once-source funding from venture capital lending banks. The core of this mechanism is third parties, usually other banks, financial institutions or insurance companies. These collateral providers either partially or fully back the loan from the source, with little or no risk to the receiving company.
Licensed financial institutions and a London-based, international law firm are the direct legal representative and consortium of investor-depositors who are prepared to purchase the collateral instruments for our clients. Our London-based international law firm alliance is also a licensed Escrow agent for distribution of deposit funds and loan funds. For this reason, our Strategic Alliances are recognized by cooperating lending banks as a “Collateral Provider”, allowing them maximum control over management and support for the process.
Reliable Results for Investment and Project Financing
The reliable procurement of capital funds is not a myth, but an unavoidable reality. The mission of funding sources is in fact to give working capital, not to withhold it. They are under significant pressure from contractual obligations with constituent investors, pension funds, trusts or even government agencies to make active use of funds to realize gains. Under performance or inactivity results in damage to the source’s reputation, and even loss of rights to manage the entrusted funds.
Preparation of Projects
Applying extensive professional resources, intellectual property, and effective strategies, it is only a matter of time before a professional services firm obtains an approval and offer from a source on favorable terms.
anti fraud due diligence
Types and Methods
"The term “due diligence” comes from the legal concept that corporate executives have a legal obligation to duly exercise reasonable diligence in researching any potentially adverse facts in a business or transaction.
The phrase “due diligence” was first made popular by multinational law firms. It later became even more commonly used when prominent financial consulting firms began to incorporate the related practices of law firms into their services. As a result of this widespread popularity, “due diligence” is like a diluted trademark, often used as an interchangeable synonym for a “background check”, although real “background checks” can only effectively be provided by detective agencies, investigative or security firms. The essence of professional due diligence work is to provide complete, accurate and reliable fact finding, to establish a true and correct representation of a business situation for effective decision making.
The Due Diligence methods used by the law and financial firms that made the term popular are generally limited, and are not “investigative” in character. Such professional practice firms generally advise the client on requesting available corporate documents or accounting statements from potential business partners prior to contract closings, and assist the client in obtaining copies of similar publicly filed records declared by the subject of the inquiry.
This method commonly uses “check lists” of documents, licenses, etc. that should be identified and collected as the basis for specific types of transactions, such as mergers and acquisitions, real estate development deals, franchising and product licensing, joint venture contracts, or direct investment. The firm will have different checklists that are used for each type or category of transaction. In addition to identifying and collecting legal and commercial documents, the firm will review them to ensure that documents are properly signed, complete, accurate and otherwise legitimate.
Legal and management consulting firms do not attempt or purport to meet the standards of the economic security industry for background checks or investigations. This type of Due Diligence is not intended to provide a conclusion as to whether a potential partner is reliable. Accordingly, law and financial firms often hire security firms to conduct economic security investigations as a supplement to the “management consulting” type corporate Due Diligence.
The most widely used due diligence methods in the security industry are referred to by professionals as “Open Source” research. This type of background checks are conducted on the level of official registered information, such as corporate registrations and business filings, proprietary ownership registrations, mass media articles, publications and broadcast transcripts (called “media search”), licensing records, and similar data that is commonly referred to as “public records”.
Taken by itself without any additional methods, however, this type of background check is highly limited in usefulness. There are many “security” companies on the market that offer “public records” and “open source” research, providing only unverified raw data obtained from the most readily available computerized databases. While this approach is popular for its minimal cost, it most often cannot address the most valuable information upon which clients must make important business decisions. At worst, limited “public records” checks can overlook critical facts and mislead decision makers. At best, they usually raise many more questions than they answer.
A professional “Background Check” investigation consists of a full and advanced “open source” investigation, enhanced by extensive verification and analysis of data. Conducting effective “open source” background checks for use in due diligence investigations is both an art and a science.
For reliable results, it is necessary to use experienced professional investigators who know exactly what factors and indications to look for, can quickly assess or verify the validity of information discovered. For results to have practical value and benefit for the client to use in real-world business situations, the investigators must also be able to fully explain and interpret the significance of information, and make practical recommendations."
-Advisory Counsel
"The term “due diligence” comes from the legal concept that corporate executives have a legal obligation to duly exercise reasonable diligence in researching any potentially adverse facts in a business or transaction.
The phrase “due diligence” was first made popular by multinational law firms. It later became even more commonly used when prominent financial consulting firms began to incorporate the related practices of law firms into their services. As a result of this widespread popularity, “due diligence” is like a diluted trademark, often used as an interchangeable synonym for a “background check”, although real “background checks” can only effectively be provided by detective agencies, investigative or security firms. The essence of professional due diligence work is to provide complete, accurate and reliable fact finding, to establish a true and correct representation of a business situation for effective decision making.
The Due Diligence methods used by the law and financial firms that made the term popular are generally limited, and are not “investigative” in character. Such professional practice firms generally advise the client on requesting available corporate documents or accounting statements from potential business partners prior to contract closings, and assist the client in obtaining copies of similar publicly filed records declared by the subject of the inquiry.
This method commonly uses “check lists” of documents, licenses, etc. that should be identified and collected as the basis for specific types of transactions, such as mergers and acquisitions, real estate development deals, franchising and product licensing, joint venture contracts, or direct investment. The firm will have different checklists that are used for each type or category of transaction. In addition to identifying and collecting legal and commercial documents, the firm will review them to ensure that documents are properly signed, complete, accurate and otherwise legitimate.
Legal and management consulting firms do not attempt or purport to meet the standards of the economic security industry for background checks or investigations. This type of Due Diligence is not intended to provide a conclusion as to whether a potential partner is reliable. Accordingly, law and financial firms often hire security firms to conduct economic security investigations as a supplement to the “management consulting” type corporate Due Diligence.
The most widely used due diligence methods in the security industry are referred to by professionals as “Open Source” research. This type of background checks are conducted on the level of official registered information, such as corporate registrations and business filings, proprietary ownership registrations, mass media articles, publications and broadcast transcripts (called “media search”), licensing records, and similar data that is commonly referred to as “public records”.
Taken by itself without any additional methods, however, this type of background check is highly limited in usefulness. There are many “security” companies on the market that offer “public records” and “open source” research, providing only unverified raw data obtained from the most readily available computerized databases. While this approach is popular for its minimal cost, it most often cannot address the most valuable information upon which clients must make important business decisions. At worst, limited “public records” checks can overlook critical facts and mislead decision makers. At best, they usually raise many more questions than they answer.
A professional “Background Check” investigation consists of a full and advanced “open source” investigation, enhanced by extensive verification and analysis of data. Conducting effective “open source” background checks for use in due diligence investigations is both an art and a science.
For reliable results, it is necessary to use experienced professional investigators who know exactly what factors and indications to look for, can quickly assess or verify the validity of information discovered. For results to have practical value and benefit for the client to use in real-world business situations, the investigators must also be able to fully explain and interpret the significance of information, and make practical recommendations."
-Advisory Counsel
Thursday, May 13, 2010
SECURITIES LOANS
A Securities-backed Finance Primer for Prospective Borrowers
What a Stock-Secured Loan Borrower Needs to Know Prior to Signing on the Dotted Line.
Is a securities-collateralized loan the right choice for you?
This may sound like a simple, easy-to-answer question, but it bears asking - and answering. Put another way, do you really need this loan? Or would you be wiser to wait, or maybe to sell your investments outright in the conventional manner through your brokerage or bank?
No one can answer that question other than you as the owner and prospective borrower, because at the end of the day your financial objectives, your assets, and and your needs are yours and yours alone. That isn't to say you shouldn't get outside advice, particularly if you are not well-versed in financing issues. To the contrary: Input from your qualified financial adviser, CPA, or attorney should be a standard part of your financial decision-making in any realm. Still, whether or not to proceed with securities-backed financing will be your decision alone to make, and just as you'd learn the different financing options, rates, and so forth before buying a car, so you owe it to yourself to learn all you can about securities loans.
However you ultimately decide – and whether you place your loan through our service or another – we have assembled this page for all prospective securities loan borrowers because there are several basic concepts we think you ought to understand before you sign on the dotted line. We hope you'll find this section useful in helping you make your decision wisely.
Should you have any comments or further questions after reading this, please feel free to drop us a line via our Contact Form and we will respond immediately.
TRANSPARENCY AND DISCLOSURE - WHY IT MATTERS.
Like any contract, it is important that you review all of the information carefully before you commit to anything, and to be sure that you are completely comfortable with and fully understand the terms of your lender's contract before you sign. You should understand and receive full disclosure covering the key elements of your loan, and these should be provided freely by the actual signatory lender (or a licensed advisor or intermediary for that institution)
The most important information you should have is much like what you should know about any financing anywhere, beginning with the total cost of the financing including interest and any points or fees. As a rule, there should be no administrative "processing fees" or any other form of advance fees payable up front before you receive your financing (Good securities loan programs do not charge fees in advance of the loan itself.)
Expect - insist - that your lender fully disclose how the interest rate is determined, whether fixed or floating or any other method is used, and when the loan and payments are due. Make sure the term (length) of your loan is likewise clearly stated. Make sure any fees are listed and clearly stated at the very outset, and that you understand what net loan amount to expect and how that amount will be determined. Do not proceed until you have asked all of these questions and have received satisfactory answers to all of them.
How we implement this. Our company gives you interest rate and LTV ranges verbally during our first phone call with you. Following that first call and confidential delivery of your account statement for review, we deliver a formal Term Sheet outlining in detail the total cost of your loan as quoted over the full term of your loan (average is 3-5 years). The interest rate is now firm and clearly stated. You understand precisely when your interest-only repayment would begin if you chose to proceed to your loan documents, and you will know what your total payments come to annually and over the full term using the lender's rate calculation method.
It's a good idea generally (and particularly so if you are not accustomed to lending contracts) to have your securities loan agreement reviewed by a knowledgeable trusted third party, for example your attorney or your CPA. If you do not understand any aspect of your securities loan contract, you should always ask and get the answers you need. Never enter into any contract unless you fully understand it and your questions have been answered in full. Remember - You have every right – and we would add, every responsibility – to know precisely what each word in your loan contract means or implies before you close.
PROMPT AND COMPLETE ANSWERS SHOULD NOT BE OPTIONAL
Make sure your lending firm has an "open door" policy when it comes to your questions. Your lender should have no hesitation to provide answers to even the simplest of questions, and you should feel completely comfortable asking them and not rushed. If you do not, then consider moving on to another loan program.
Like any industry, product, or service, the securities-backed lending field has it's share of poorly managed operations, often staffed by people who know very little about the securities business or any financial business. Out-of-work mortgage brokers, failed internet entrepreneurs, people looking for second careers - just about anybody - can put on a hat and call him/herself a loan broker. (As of this writing, plans are afoot that mean this may all change, should the administration's proposed Consumer Financial Protections Agency come into being). Wise borrowers will always keep their feet on the ground and consider their written term sheets as their guide at first, followed by their loan documents, rather than to rely on warm spoken phone assurances alone or a flashy website.
Accessibility goes hand-in-hand with prompt answers. It does no good if your lender or advisor is off vacationing in the Bahamas while you have a pressing question that cannot (and should not) wait.
How we implement this. You will start your inquiry using your online form, and one of our staff will call you typically same day to answer your questions and help you gain a full picture of our loan program and its administration. You'll be given our direct toll-free number, and if you have an account statement, you'll be provided with a no-obligation Term Sheet. We'll be on hand from 8AM-8PM Monday through Friday, and by email 24/7 for any follow-up questions. Once you have signed your Term Sheet, we'll take you directly into desk at one of our institutional program providers in New York, a top-tier, well-know "household name" firm where you will be warmly welcomed. You'll have access to your licensed account advisor from that point onward, by phone or email or in person, who will work with you to finalize your loan documents and to ensure you are full apprised of all elements of the loan.
This access extends beyond the loan signing as well. Your account advisor will be on hand whenever you need him/her; we too will be on hand should there by any questions for which we can help. Access, and a culture of personal service for over ten years means you're covered from the day you first contact us to the day you exist your loan - and beyond.
TO TRANSFER OR NOT TO TRANSFER ...
If your lender is requiring you to transfer the title into the lender's name during the loan term, this is something you need to be sure meets with your expectations and that you fully understand before you send a single share over. It is a very important question overall because it addresses the core issue of whether allowing lender contractual control over your securities until the loan is repaid is acceptable to you, or too risky.
In recent years the Internal Revenue Service has often come to treat such loan programs, particularly those where the borrower receives at least 90% LTV in collateral, as taxable at inception. Their view is that since some or all of the shares are sold as part of the funding with all transfer-of-title loans, they are therefore taxable events from the day the shares transfer to the lender. Before you choose any transfer-of-title type loan, therefore, be sure to consult with a qualified tax professional to determine if this structure will work within your financial planning model. Note also: The proceeds of such programs are in any case not tax-free by definition.
With some lenders such transfer may indeed mean more risk, although the level of risk will depend on many different factors, chief among them the financial heath and stability of the transfer-of-title lender.
HOW FINANCIALLY HEALTHY IS YOUR TRANSFER-OF-TITLE LENDER?
This is why we recommend that you ask for a statement of assets or similar review by a licensed professional to ensure that the lending firm has the assets and financial wherewithal to properly manage and process your loan. You should also request a thorough background check to ensure that you are aware of any legal or regulatory issues they may have faced. Your final decision should incorporate all of these areas, and you should not be reluctant to ask the hard questions.
Step One
Before you do anything, your first step is to conduct a legal background check. If you do not have access to a background checking service, consider using the U.S. government's own PACER database. For a nominal fee, any U.S. citizen can open a Pacer account and get access to all public records on federal-level (and many state-level) civil and criminal legal cases.
When beaming backgrounds using a search service like PACER, use the "All Courts" setting and conduct completely separate searches with these types of variations so as to bring up all applicable background information:
1) Last name, first name (no not use initials)
2) Full company name without "Inc" or "LLC" etc.
3) Names of any known principals in the company
4) It is always best to have the full name, including middle name, and state. This can usually be obtained from a copy of any picture ID, but it is especially important in the case of common names, e.g., John Smith will be harder to pinpoint that John Stanhouse Smith. If you have the full name, search on the Middle and Last name too. Sometimes those with problems in their backgrounds will use their middle name and last name as their professional name to throw background researchers off.
One technique that is useful is to use Google to start, which will allow you to collect a lot of information quickly, and then to use that with Pacer or any of the many other services to highlight information that can be searched on later. Put the name in quote marks e.g., "Alexander Smith" with words that pull out fraud or court issues, e.g.,
"Alexander Smith" court
"Alexander Smith" fraud
If you continue to get too many results, use Google's "+" function to make sure the results have what you are looking for:
"Alexander Smith" +court
"Alexander Smith" +fraud
HOWEVER: Remember that if you find derogatory information that does not necessarily mean you should do absolutely no business with that lender. You should ask for an explanation, in writing, of the circumstances surrounding the incident or case, and perhaps consult with your attorney for an opinion prior to proceeding. It is difficult for any financial firm to remain in business for any length of time without having at least one legal issue appear along the way, particularly in our overly litigious society nowadays. If the matter is minor, dismissed, or settled, and the lender's explanation is adequate, and/or enough time has passed since it occurred, you may want to still consider working with them.
If the matter involved criminal issues - criminal financial or securities fraud - that is a different matter entirely. We cannot recommend any interaction with any individual or company involved actively in an unresolved criminal securities or finance-related case, or who has been found guilty thereof of either a criminal or civil case involved securities fraud.
Step Two
If you've determined that your Transfer-of-Title lender has no unresolved legal issues, then the next step is to determine their financial health. This process is divided into two subsections:
A) Determine the managerial background of the lender; and the adequacy and quality of financial management.
One of the issues with Transfer-of-Title lenders has been that of careless, incapable, or under-capitalized lenders that become unable to service their loan portfolios, effectively making it impossible for them to return shares upon payoff.
Generally speaking, anyone can lend money privately to anyone else in the United States unless specifically prohibited from doing so in a court of law. Except for certain collection and usury laws, there is no prohibition against the lending of money.
This has helped make financing available widely, stimulating business growth, home ownership, and investments, but it has also opened the door to incompetent or incapable lenders touting themselves as "skilled" or "experienced". Even those with degrees in business may make very poor securities loan managers. Your job is to look for signs of good financial management.
Your civil/criminal and Internet background check will go a long way towards defining some background on the individual(s) managing your collateral portfolio. Your lender needs also to provide financial health verification as well.
B) Verify the lender's ability to service all loans under contract; financial health of lender.
In theory, a well-capitalized lender or a lender with adequate liquid assets who has traded or sold part or all of the collateral portfolio as part of the funding of the loan can go back into the market and purchase whatever shares he does not own when the client pays off his loan. If the lender is competent and capable, he will trade the account sufficiently to ensure that the loan cash from repayment of the loan is sufficient to cover any shortfall.
In practice, however, there are pitfalls when the lender is not particularly skillful, makes bad calculations, and/or does not have the liquid resources needed to cover any cash shortfall needed to enter the market and deliver the shares he owes to the client at loan exit. Even if properly hedged, that lender may have not paid attention to his portfolio, for example, or may have engaged in reckless practices that make it impossible to deliver the shares on time when the loan is repaid.
The only way to be sure that your lender has the capital needed to service their portfolios properly -- that is, to return shares in full upon repayment of the loan -- is to have their status verified by an independent, licensed third party. That might be a licensed CPA, or it could be an attorney specializing in finance-related business in some manner. Whoever it is must have access to the financial records of the company and the individuals who own it, and you must be able to speak with and verify the individual themselves. Needless to say, the individual must be licensed and in good standing in their state.
Obviously a full audit is ideal. However, if the reviewing party truly has access to the lender's loan portfolio, bank accounts, and other relevant financial data, and is a licensed professional in good standing, that individual can review and verify the lender's status and produce a solid picture of their financial standing.
Of course, these steps are not necessary in the case of institutional loans, since they are heavily regulated and required to abide by many strictures for licensing and SIPC-membership. Their financial statements are also, by and large, open to the public
What should you be looking for?
You are looking for verification that the lender has sufficient assets to return every portfolio under management - all of them - even under the most extreme and unusual circumstance, namely, as if all of the outstanding loans under the lender's management were paid off and all of the collateral shares had to be returned to those borrowers within a few days. Ideally, the lender should have at least ten times the liquidity needed to achieve that feat, so they have a buffer. Using this very strict system would ensure that, in the extremely unlikely event all loans under management came due simultaneously, every share could be easily returned.
But a strong as that would be, professional/licensed third-party verification should take it even a step further. The third-party evaluator should consider all of the portfolios currently under management, examine their price histories, then make "worst case" extrapolations. If all portfolios under management were to rise 20%-30% that have historically risen that much of a period of X months, how would the lender fare? A good "worst case" scenario would take the worst-case figures and play them out into forecasts over six months or longer, so that if all portfolios were to come due the lender would no only have at least 10 times the assets to service every portfolio, they'd have them even six months or a year (or more) from now given the historic price projections.
That's a lot of due diligence, but if you are contemplating a Transfer-of-Title loan, your lender should have liquidity that allows that to happen for at six months down the road based on a reasonable expectation of portfolio growth, verified by a third-party financial professional as noted.
WHAT MAKES AN INSTITUTIONAL SECURITIES LOAN SO STRONG?
The instinctive reaction to a question like this "isn't it obvious?" - but in fact one is not necessarily comparing apples to apples in this situation. True, a loan like the fully-licensed, capital-enhanced institutional loans we offer provide, on the face of it, a level of security and flexibility that is far ahead of anything currently available privately. SIPC membership for all of our managing institutions, for example, ensures that the lending brokerage has met a broad range of quality and disclosure standards in particular. In addition, major U.S. institutions have had to abide by additional safety measures over and above those they've practiced in the past, as regulatory scrutiny has increased in the wake of the subprime mortgage crisis of recent years
But as important as a regulated, licensed institutional setting is, a good securities-backed loan should offer much more than just security alone. It should include a range of features and strong, competitive terms that meet modern financial consumer's demands. Today's investors, after all, are not simply concerned about security when it comes to their financing. They want a good loan too.
Most people thinking of institutional securities loans immediately assume they are talking about standard margin loans.
* The loan-to-value of a margin loan is limited to 50% of the value of the collateral.
* Our loans go as high as 95% for some types of securities (our proceeds, however, cannot be used to purchase marginable securities).
* Interest rates may or may not be competitive, often are not.
* Our rates are always very competitive, some of the lowest monthly-LIBOR-based rates in financing.
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* Special structures including limited-recourse loan contracts are not common and usually available, if at all.
* Our limited recourse (in default loan variant is available to any borrower with marginable, optionable securities.
* The loans are all easily callable if the value declines, requiring the borrower quickly up with cash or further shares to cover the shortfall or risk default
* Our program can be tailored to have no call, or a very deep call that will only be triggered in extreme cases, with a liberal cure policy.
* In many ways, traditional institutional loans meet the needs of certain investors,
* Our loans are flexible enough to meet the needs of virtually any investor, and a client's securities are not sold to fund their loan.
Clients love the security of a fully regulated financial institution, particularly today, which is understandable. But they do not like the limits and restrictions that often make it impossible for a borrower to achieve their financial objectives. Private funding, though possibly attractive, can bring in issues of safety and stability as noted in the discussion above. Yet institutions are loathe to experiment with alternative financing or expanded loan features at a time when economic concerns present unacceptable levels of risk.
We discovered that the market demanded a loan product superior to both private and institutional variants without sacrificing the superior safety and predictability of institutional underwriting and management.
How we implement this. Public-private integration was the path we chose. By using capital depository relationships with several top brokerages, we were able to "open the door" to the creation of equity-enhanced lending facilities that would be far closer to what our clients were demanding in their lending program. With this enhanced loan facility, many benefits over traditional institutional lending became possible, chief among them much higher loan-to-value and low, monthly-LIBOR-based interest rates.
With the additional presence of private capital to back the loan facility, many features normally associated with the higher tier of private banking become available for every client of his loan program, even those with portfolios as low as $150,000. Swapping one set of collateral stocks for another set of equivalent value, mid-loan, for example. Consideration for additional loan cash if the portfolio rose in value while it secured the loan for another. Or executing a hedged portfolio structure, institutionally managed, to help reduce or eliminate the potential claim on other assets in default.
That would be attractive in any loan package of course. But in our institutional package it has brought all the benefits and features of a modern top-tier financial firm's custom financing desk (some crafted to our specifications) to our loan clients, including online account reporting and full access to the institution's collateral offerings on more exclusive terms. Best of all, the collateral securities remain in our client's title and account throughout the entire loan, with no question as to who owns them.
SO AGAIN: SHOULD YOU PROCEED WITH A SECURITIES-BACKED LOAN?
Again, the most important question of all. Why not just pick up the phone, call your stock broker, and tell him to sell your stocks at today's or some set price?
We don't think a stock-secured loan is the answer for everyone. But we do think that if retaining your stocks rather than a direct sale through your brokerage, or an indirect hedge-type sale through a transfer-of-title lender is important to you, then our institutional lending facility is without question the finest of its kind. And if your still prefer a transfer-of-title loan, our lender has provided documented verification throughout that matches the recommended requirements noted above.
Whether or not you choose to fund with us, keep in mind that wherever you place your collateral, you should always strive to know your actual lender, the signatory to your loans and how your loan is funded and administered. If you choose an institutional program, that work has been largely done for you. If you choose a transfer-of-title lender, then you'll need to do the work yourself. Above all, when there's anything you do not understand, ask. Make sure you are fully comfortable with your loan as well as your lender and if you are, you can sit back and enjoy the assurance of knowing you've "done your homework" prior to taking this important step.
What a Stock-Secured Loan Borrower Needs to Know Prior to Signing on the Dotted Line.
Is a securities-collateralized loan the right choice for you?
This may sound like a simple, easy-to-answer question, but it bears asking - and answering. Put another way, do you really need this loan? Or would you be wiser to wait, or maybe to sell your investments outright in the conventional manner through your brokerage or bank?
No one can answer that question other than you as the owner and prospective borrower, because at the end of the day your financial objectives, your assets, and and your needs are yours and yours alone. That isn't to say you shouldn't get outside advice, particularly if you are not well-versed in financing issues. To the contrary: Input from your qualified financial adviser, CPA, or attorney should be a standard part of your financial decision-making in any realm. Still, whether or not to proceed with securities-backed financing will be your decision alone to make, and just as you'd learn the different financing options, rates, and so forth before buying a car, so you owe it to yourself to learn all you can about securities loans.
However you ultimately decide – and whether you place your loan through our service or another – we have assembled this page for all prospective securities loan borrowers because there are several basic concepts we think you ought to understand before you sign on the dotted line. We hope you'll find this section useful in helping you make your decision wisely.
Should you have any comments or further questions after reading this, please feel free to drop us a line via our Contact Form and we will respond immediately.
TRANSPARENCY AND DISCLOSURE - WHY IT MATTERS.
Like any contract, it is important that you review all of the information carefully before you commit to anything, and to be sure that you are completely comfortable with and fully understand the terms of your lender's contract before you sign. You should understand and receive full disclosure covering the key elements of your loan, and these should be provided freely by the actual signatory lender (or a licensed advisor or intermediary for that institution)
The most important information you should have is much like what you should know about any financing anywhere, beginning with the total cost of the financing including interest and any points or fees. As a rule, there should be no administrative "processing fees" or any other form of advance fees payable up front before you receive your financing (Good securities loan programs do not charge fees in advance of the loan itself.)
Expect - insist - that your lender fully disclose how the interest rate is determined, whether fixed or floating or any other method is used, and when the loan and payments are due. Make sure the term (length) of your loan is likewise clearly stated. Make sure any fees are listed and clearly stated at the very outset, and that you understand what net loan amount to expect and how that amount will be determined. Do not proceed until you have asked all of these questions and have received satisfactory answers to all of them.
How we implement this. Our company gives you interest rate and LTV ranges verbally during our first phone call with you. Following that first call and confidential delivery of your account statement for review, we deliver a formal Term Sheet outlining in detail the total cost of your loan as quoted over the full term of your loan (average is 3-5 years). The interest rate is now firm and clearly stated. You understand precisely when your interest-only repayment would begin if you chose to proceed to your loan documents, and you will know what your total payments come to annually and over the full term using the lender's rate calculation method.
It's a good idea generally (and particularly so if you are not accustomed to lending contracts) to have your securities loan agreement reviewed by a knowledgeable trusted third party, for example your attorney or your CPA. If you do not understand any aspect of your securities loan contract, you should always ask and get the answers you need. Never enter into any contract unless you fully understand it and your questions have been answered in full. Remember - You have every right – and we would add, every responsibility – to know precisely what each word in your loan contract means or implies before you close.
PROMPT AND COMPLETE ANSWERS SHOULD NOT BE OPTIONAL
Make sure your lending firm has an "open door" policy when it comes to your questions. Your lender should have no hesitation to provide answers to even the simplest of questions, and you should feel completely comfortable asking them and not rushed. If you do not, then consider moving on to another loan program.
Like any industry, product, or service, the securities-backed lending field has it's share of poorly managed operations, often staffed by people who know very little about the securities business or any financial business. Out-of-work mortgage brokers, failed internet entrepreneurs, people looking for second careers - just about anybody - can put on a hat and call him/herself a loan broker. (As of this writing, plans are afoot that mean this may all change, should the administration's proposed Consumer Financial Protections Agency come into being). Wise borrowers will always keep their feet on the ground and consider their written term sheets as their guide at first, followed by their loan documents, rather than to rely on warm spoken phone assurances alone or a flashy website.
Accessibility goes hand-in-hand with prompt answers. It does no good if your lender or advisor is off vacationing in the Bahamas while you have a pressing question that cannot (and should not) wait.
How we implement this. You will start your inquiry using your online form, and one of our staff will call you typically same day to answer your questions and help you gain a full picture of our loan program and its administration. You'll be given our direct toll-free number, and if you have an account statement, you'll be provided with a no-obligation Term Sheet. We'll be on hand from 8AM-8PM Monday through Friday, and by email 24/7 for any follow-up questions. Once you have signed your Term Sheet, we'll take you directly into desk at one of our institutional program providers in New York, a top-tier, well-know "household name" firm where you will be warmly welcomed. You'll have access to your licensed account advisor from that point onward, by phone or email or in person, who will work with you to finalize your loan documents and to ensure you are full apprised of all elements of the loan.
This access extends beyond the loan signing as well. Your account advisor will be on hand whenever you need him/her; we too will be on hand should there by any questions for which we can help. Access, and a culture of personal service for over ten years means you're covered from the day you first contact us to the day you exist your loan - and beyond.
TO TRANSFER OR NOT TO TRANSFER ...
If your lender is requiring you to transfer the title into the lender's name during the loan term, this is something you need to be sure meets with your expectations and that you fully understand before you send a single share over. It is a very important question overall because it addresses the core issue of whether allowing lender contractual control over your securities until the loan is repaid is acceptable to you, or too risky.
In recent years the Internal Revenue Service has often come to treat such loan programs, particularly those where the borrower receives at least 90% LTV in collateral, as taxable at inception. Their view is that since some or all of the shares are sold as part of the funding with all transfer-of-title loans, they are therefore taxable events from the day the shares transfer to the lender. Before you choose any transfer-of-title type loan, therefore, be sure to consult with a qualified tax professional to determine if this structure will work within your financial planning model. Note also: The proceeds of such programs are in any case not tax-free by definition.
With some lenders such transfer may indeed mean more risk, although the level of risk will depend on many different factors, chief among them the financial heath and stability of the transfer-of-title lender.
HOW FINANCIALLY HEALTHY IS YOUR TRANSFER-OF-TITLE LENDER?
This is why we recommend that you ask for a statement of assets or similar review by a licensed professional to ensure that the lending firm has the assets and financial wherewithal to properly manage and process your loan. You should also request a thorough background check to ensure that you are aware of any legal or regulatory issues they may have faced. Your final decision should incorporate all of these areas, and you should not be reluctant to ask the hard questions.
Step One
Before you do anything, your first step is to conduct a legal background check. If you do not have access to a background checking service, consider using the U.S. government's own PACER database. For a nominal fee, any U.S. citizen can open a Pacer account and get access to all public records on federal-level (and many state-level) civil and criminal legal cases.
When beaming backgrounds using a search service like PACER, use the "All Courts" setting and conduct completely separate searches with these types of variations so as to bring up all applicable background information:
1) Last name, first name (no not use initials)
2) Full company name without "Inc" or "LLC" etc.
3) Names of any known principals in the company
4) It is always best to have the full name, including middle name, and state. This can usually be obtained from a copy of any picture ID, but it is especially important in the case of common names, e.g., John Smith will be harder to pinpoint that John Stanhouse Smith. If you have the full name, search on the Middle and Last name too. Sometimes those with problems in their backgrounds will use their middle name and last name as their professional name to throw background researchers off.
One technique that is useful is to use Google to start, which will allow you to collect a lot of information quickly, and then to use that with Pacer or any of the many other services to highlight information that can be searched on later. Put the name in quote marks e.g., "Alexander Smith" with words that pull out fraud or court issues, e.g.,
"Alexander Smith" court
"Alexander Smith" fraud
If you continue to get too many results, use Google's "+" function to make sure the results have what you are looking for:
"Alexander Smith" +court
"Alexander Smith" +fraud
HOWEVER: Remember that if you find derogatory information that does not necessarily mean you should do absolutely no business with that lender. You should ask for an explanation, in writing, of the circumstances surrounding the incident or case, and perhaps consult with your attorney for an opinion prior to proceeding. It is difficult for any financial firm to remain in business for any length of time without having at least one legal issue appear along the way, particularly in our overly litigious society nowadays. If the matter is minor, dismissed, or settled, and the lender's explanation is adequate, and/or enough time has passed since it occurred, you may want to still consider working with them.
If the matter involved criminal issues - criminal financial or securities fraud - that is a different matter entirely. We cannot recommend any interaction with any individual or company involved actively in an unresolved criminal securities or finance-related case, or who has been found guilty thereof of either a criminal or civil case involved securities fraud.
Step Two
If you've determined that your Transfer-of-Title lender has no unresolved legal issues, then the next step is to determine their financial health. This process is divided into two subsections:
A) Determine the managerial background of the lender; and the adequacy and quality of financial management.
One of the issues with Transfer-of-Title lenders has been that of careless, incapable, or under-capitalized lenders that become unable to service their loan portfolios, effectively making it impossible for them to return shares upon payoff.
Generally speaking, anyone can lend money privately to anyone else in the United States unless specifically prohibited from doing so in a court of law. Except for certain collection and usury laws, there is no prohibition against the lending of money.
This has helped make financing available widely, stimulating business growth, home ownership, and investments, but it has also opened the door to incompetent or incapable lenders touting themselves as "skilled" or "experienced". Even those with degrees in business may make very poor securities loan managers. Your job is to look for signs of good financial management.
Your civil/criminal and Internet background check will go a long way towards defining some background on the individual(s) managing your collateral portfolio. Your lender needs also to provide financial health verification as well.
B) Verify the lender's ability to service all loans under contract; financial health of lender.
In theory, a well-capitalized lender or a lender with adequate liquid assets who has traded or sold part or all of the collateral portfolio as part of the funding of the loan can go back into the market and purchase whatever shares he does not own when the client pays off his loan. If the lender is competent and capable, he will trade the account sufficiently to ensure that the loan cash from repayment of the loan is sufficient to cover any shortfall.
In practice, however, there are pitfalls when the lender is not particularly skillful, makes bad calculations, and/or does not have the liquid resources needed to cover any cash shortfall needed to enter the market and deliver the shares he owes to the client at loan exit. Even if properly hedged, that lender may have not paid attention to his portfolio, for example, or may have engaged in reckless practices that make it impossible to deliver the shares on time when the loan is repaid.
The only way to be sure that your lender has the capital needed to service their portfolios properly -- that is, to return shares in full upon repayment of the loan -- is to have their status verified by an independent, licensed third party. That might be a licensed CPA, or it could be an attorney specializing in finance-related business in some manner. Whoever it is must have access to the financial records of the company and the individuals who own it, and you must be able to speak with and verify the individual themselves. Needless to say, the individual must be licensed and in good standing in their state.
Obviously a full audit is ideal. However, if the reviewing party truly has access to the lender's loan portfolio, bank accounts, and other relevant financial data, and is a licensed professional in good standing, that individual can review and verify the lender's status and produce a solid picture of their financial standing.
Of course, these steps are not necessary in the case of institutional loans, since they are heavily regulated and required to abide by many strictures for licensing and SIPC-membership. Their financial statements are also, by and large, open to the public
What should you be looking for?
You are looking for verification that the lender has sufficient assets to return every portfolio under management - all of them - even under the most extreme and unusual circumstance, namely, as if all of the outstanding loans under the lender's management were paid off and all of the collateral shares had to be returned to those borrowers within a few days. Ideally, the lender should have at least ten times the liquidity needed to achieve that feat, so they have a buffer. Using this very strict system would ensure that, in the extremely unlikely event all loans under management came due simultaneously, every share could be easily returned.
But a strong as that would be, professional/licensed third-party verification should take it even a step further. The third-party evaluator should consider all of the portfolios currently under management, examine their price histories, then make "worst case" extrapolations. If all portfolios under management were to rise 20%-30% that have historically risen that much of a period of X months, how would the lender fare? A good "worst case" scenario would take the worst-case figures and play them out into forecasts over six months or longer, so that if all portfolios were to come due the lender would no only have at least 10 times the assets to service every portfolio, they'd have them even six months or a year (or more) from now given the historic price projections.
That's a lot of due diligence, but if you are contemplating a Transfer-of-Title loan, your lender should have liquidity that allows that to happen for at six months down the road based on a reasonable expectation of portfolio growth, verified by a third-party financial professional as noted.
WHAT MAKES AN INSTITUTIONAL SECURITIES LOAN SO STRONG?
The instinctive reaction to a question like this "isn't it obvious?" - but in fact one is not necessarily comparing apples to apples in this situation. True, a loan like the fully-licensed, capital-enhanced institutional loans we offer provide, on the face of it, a level of security and flexibility that is far ahead of anything currently available privately. SIPC membership for all of our managing institutions, for example, ensures that the lending brokerage has met a broad range of quality and disclosure standards in particular. In addition, major U.S. institutions have had to abide by additional safety measures over and above those they've practiced in the past, as regulatory scrutiny has increased in the wake of the subprime mortgage crisis of recent years
But as important as a regulated, licensed institutional setting is, a good securities-backed loan should offer much more than just security alone. It should include a range of features and strong, competitive terms that meet modern financial consumer's demands. Today's investors, after all, are not simply concerned about security when it comes to their financing. They want a good loan too.
Most people thinking of institutional securities loans immediately assume they are talking about standard margin loans.
* The loan-to-value of a margin loan is limited to 50% of the value of the collateral.
* Our loans go as high as 95% for some types of securities (our proceeds, however, cannot be used to purchase marginable securities).
* Interest rates may or may not be competitive, often are not.
* Our rates are always very competitive, some of the lowest monthly-LIBOR-based rates in financing.
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* Special structures including limited-recourse loan contracts are not common and usually available, if at all.
* Our limited recourse (in default loan variant is available to any borrower with marginable, optionable securities.
* The loans are all easily callable if the value declines, requiring the borrower quickly up with cash or further shares to cover the shortfall or risk default
* Our program can be tailored to have no call, or a very deep call that will only be triggered in extreme cases, with a liberal cure policy.
* In many ways, traditional institutional loans meet the needs of certain investors,
* Our loans are flexible enough to meet the needs of virtually any investor, and a client's securities are not sold to fund their loan.
Clients love the security of a fully regulated financial institution, particularly today, which is understandable. But they do not like the limits and restrictions that often make it impossible for a borrower to achieve their financial objectives. Private funding, though possibly attractive, can bring in issues of safety and stability as noted in the discussion above. Yet institutions are loathe to experiment with alternative financing or expanded loan features at a time when economic concerns present unacceptable levels of risk.
We discovered that the market demanded a loan product superior to both private and institutional variants without sacrificing the superior safety and predictability of institutional underwriting and management.
How we implement this. Public-private integration was the path we chose. By using capital depository relationships with several top brokerages, we were able to "open the door" to the creation of equity-enhanced lending facilities that would be far closer to what our clients were demanding in their lending program. With this enhanced loan facility, many benefits over traditional institutional lending became possible, chief among them much higher loan-to-value and low, monthly-LIBOR-based interest rates.
With the additional presence of private capital to back the loan facility, many features normally associated with the higher tier of private banking become available for every client of his loan program, even those with portfolios as low as $150,000. Swapping one set of collateral stocks for another set of equivalent value, mid-loan, for example. Consideration for additional loan cash if the portfolio rose in value while it secured the loan for another. Or executing a hedged portfolio structure, institutionally managed, to help reduce or eliminate the potential claim on other assets in default.
That would be attractive in any loan package of course. But in our institutional package it has brought all the benefits and features of a modern top-tier financial firm's custom financing desk (some crafted to our specifications) to our loan clients, including online account reporting and full access to the institution's collateral offerings on more exclusive terms. Best of all, the collateral securities remain in our client's title and account throughout the entire loan, with no question as to who owns them.
SO AGAIN: SHOULD YOU PROCEED WITH A SECURITIES-BACKED LOAN?
Again, the most important question of all. Why not just pick up the phone, call your stock broker, and tell him to sell your stocks at today's or some set price?
We don't think a stock-secured loan is the answer for everyone. But we do think that if retaining your stocks rather than a direct sale through your brokerage, or an indirect hedge-type sale through a transfer-of-title lender is important to you, then our institutional lending facility is without question the finest of its kind. And if your still prefer a transfer-of-title loan, our lender has provided documented verification throughout that matches the recommended requirements noted above.
Whether or not you choose to fund with us, keep in mind that wherever you place your collateral, you should always strive to know your actual lender, the signatory to your loans and how your loan is funded and administered. If you choose an institutional program, that work has been largely done for you. If you choose a transfer-of-title lender, then you'll need to do the work yourself. Above all, when there's anything you do not understand, ask. Make sure you are fully comfortable with your loan as well as your lender and if you are, you can sit back and enjoy the assurance of knowing you've "done your homework" prior to taking this important step.
Wednesday, May 5, 2010
reciprocity
Trivia
Today's Question: All of Henry Ford's cars
were black until 1925 when he introduced
two new colors. What were they?
Yesterday's Question: A 1959 commercial for
Good Luck Margarine featured whom as the
spokesperson?
Answer: The spokesperson was former First
Lady Eleanor Roosevelt.
Today it would probably be impossible to
get the First Lady to endorse your product,
but the power of endorsements remains
an incredibly powerful marketing tool.
Think about who could be a powerful spokesperson
or endorser of your products or services. In
many cases, that person may be a or local or industry
celebrity and could be paid just a small sum,
paid in equity, or not paid at all if you have
a strong relationship with them.
*** Months Later & This LAW Still Holds True
Several months ago, there was a huge snow storm
that caused my power to go out for two days.
Fortunately, a friend of ours living a few miles away
didn't lose power and invited us (my wife, kids and I)
to stay with them until our power was restored.
Well, the other day, I ran into William, the father
of that family. William is a great guy, so I was excited
to see him. But I felt slightly awkward because I
felt a little as if I owed him something.
Now, after our stay, we gave William and his wife
a nice bottle of wine and a nice thank you card.
But that must not have made me feel "even."
You see, a very powerful law was in force here --
The Law of Reciprocity.
The Law of Reciprocity was made famous by
Dr. Robert Cialdini in his book "Influence: The
Psychology of Persuasion." The Law states
that if you give someone something, they feel
compelled to give you something back in return.
That is why you'll often receive "gifts" in the mail,
like return address stickers from non-profits. Their
hope is that by sending you something of value, that
you will reciprocate by sending them a donation.
The Law of Reciprocity is clearly very powerful.
And it should be added to your marketing mix.
- Can you give your customers or prospects a
product sample, a book, or a report of value to them?
- Can you give quality advice that can improve
their success?
- Can you make a helpful introduction to a
potential partner?
Think about what you can do for others.
Since if they truly value it, they will seek to
help you out when they can.
Note: I am not saying to do this in sneaky way
where you give someone something just to try
to get the Law of Reciprocity working for you.
You must be genuine in your efforts to
help someone out for this law to take hold.
*** Watch This to Protect Your Company
Entrepreneurs are always concerned (and rightfully so)
about protecting their business ideas and concepts.
Not only are there numerous cases of individuals and
companies unlawfully stealing ideas and infringing on trade
secrets, but there are even tons of examples of
companies losing the right to use their company name
or product name after they start achieving success.
To make sure you are protected, I asked Stephen
Strauss from the law firm Fulwider- Patton LLP to give me
a private webinar on these key topics.
You see, Stephen specializes in trademark, copyright,
unfair competition and trade secret law. He's at the top
of the game in this field, not only representing a diverse
list of startups and large corporations, but top
entertainers like Stevie Wonder.
Today's Question: All of Henry Ford's cars
were black until 1925 when he introduced
two new colors. What were they?
Yesterday's Question: A 1959 commercial for
Good Luck Margarine featured whom as the
spokesperson?
Answer: The spokesperson was former First
Lady Eleanor Roosevelt.
Today it would probably be impossible to
get the First Lady to endorse your product,
but the power of endorsements remains
an incredibly powerful marketing tool.
Think about who could be a powerful spokesperson
or endorser of your products or services. In
many cases, that person may be a or local or industry
celebrity and could be paid just a small sum,
paid in equity, or not paid at all if you have
a strong relationship with them.
*** Months Later & This LAW Still Holds True
Several months ago, there was a huge snow storm
that caused my power to go out for two days.
Fortunately, a friend of ours living a few miles away
didn't lose power and invited us (my wife, kids and I)
to stay with them until our power was restored.
Well, the other day, I ran into William, the father
of that family. William is a great guy, so I was excited
to see him. But I felt slightly awkward because I
felt a little as if I owed him something.
Now, after our stay, we gave William and his wife
a nice bottle of wine and a nice thank you card.
But that must not have made me feel "even."
You see, a very powerful law was in force here --
The Law of Reciprocity.
The Law of Reciprocity was made famous by
Dr. Robert Cialdini in his book "Influence: The
Psychology of Persuasion." The Law states
that if you give someone something, they feel
compelled to give you something back in return.
That is why you'll often receive "gifts" in the mail,
like return address stickers from non-profits. Their
hope is that by sending you something of value, that
you will reciprocate by sending them a donation.
The Law of Reciprocity is clearly very powerful.
And it should be added to your marketing mix.
- Can you give your customers or prospects a
product sample, a book, or a report of value to them?
- Can you give quality advice that can improve
their success?
- Can you make a helpful introduction to a
potential partner?
Think about what you can do for others.
Since if they truly value it, they will seek to
help you out when they can.
Note: I am not saying to do this in sneaky way
where you give someone something just to try
to get the Law of Reciprocity working for you.
You must be genuine in your efforts to
help someone out for this law to take hold.
*** Watch This to Protect Your Company
Entrepreneurs are always concerned (and rightfully so)
about protecting their business ideas and concepts.
Not only are there numerous cases of individuals and
companies unlawfully stealing ideas and infringing on trade
secrets, but there are even tons of examples of
companies losing the right to use their company name
or product name after they start achieving success.
To make sure you are protected, I asked Stephen
Strauss from the law firm Fulwider- Patton LLP to give me
a private webinar on these key topics.
You see, Stephen specializes in trademark, copyright,
unfair competition and trade secret law. He's at the top
of the game in this field, not only representing a diverse
list of startups and large corporations, but top
entertainers like Stevie Wonder.
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