How to Find Liquidity Solutions as Banks Continue to Tighten Access to Credit
Let’s face it: Liquidity is King.
It takes Money (Investment Capital) to make Money (Profit) since Money (Liquidity) is the fuel for life. The less Money that you have, the more limited are your options to find solutions when you need them. Conversely, the more Money that you have, the less limited are the optional solutions available to you.
The ancient Jewish King Solomon wrote in the Book of Ecclesiastes 10:19, translated from the Hebrew:
“[In order] to laugh, [we] make bread, and wine will make life happy, and the money will answer all [matters].” — (Ecclesiastes 10:19)
In other words: When you want to do something (e.g. you need to solve a problem), money provides an answer (i.e. a means, fuel, and possible solutions) for everything — and the solutions that you can obtain when you have money are much better solutions than when you are lacking money.
Banks Continue to Tighten Access to Credit and Liquidity
In both the United States and Europe, banks are tightening access to credit and liquidity. In the U.S., banks are tightening standards on every category of loan including for businesses, credit cards, auto loans, and mortgages at a rate comparable to 2008.
The European Central Bank recently released its January 2021 Euro Area Bank Quarterly Lending Survey that states “Banks referred to the deterioration of the general economic outlook, increased credit risk of borrowers and a lower risk tolerance as relevant factors for the tightening of their credit standards for loans to firms and households. In the first quarter of 2021, banks expect credit standards to continue to tighten for loans to firms and households.”
As reported on 19 January 2021 in the Financial Times, “In the final quarter of 2020, banks tightened their lending guidelines and approval criteria for new loans to businesses by the most since the 2008 financial crisis and several of them expected to rein in access to credit further in the first quarter of this year, the ECB’s quarterly survey of banks found.”
Furthermore, the Independent of Ireland reports, “Euro area banks expect a continued net tightening of credit standards on loans to firms in the first quarter of 2021, reflecting the continued uncertainties around the further development of the pandemic and its effects on borrowers’ credit risk.”
We live in unique times: the world is in lockdown because of COVID-19, economies are collapsing, and yet the stock markets in many parts of the world are skyrocketing. Stock valuations in many markets are at the highest than ever before.
As Banks continue to tighten access to business and personal credit, where (and how) can you find the Liquidity Solutions that you need? If you own Stock/Equity/Securities, then there are solutions that exist without having to sell your securities in order to raise Liquidity.
Utilizing Stock Loans as Liquidity Solutions
A Stock Loan (i.e. a Loan-Stock Instrument (LSI), Loan Stock, or a Securities-Based Loan) is a relatively new financial instrument that leverages the higher returns possible with stocks, or stock-like instruments, to create a Loan-like (i.e. a fixed-rate) Loan-Stock Instrument (LSI) that is beneficial for both Lenders and Borrowers. The new financial instrument takes advantage of the fact that on average the stock market grows over time.
With a Stock Loan (i.e. a Loan-Stock Instrument (LSI), Loan Stock, or a Securities-Based Loan) when the value of the underlying security increases the amount that the Borrower has to repay correspondingly decreases compared to the amount to be repaid when a traditional Loan is employed. Conversely, when the value of the underlying security decreases the amount that the Borrower has to repay correspondingly increases. However, with a Non-Recourse Loan, the Borrower always has the option of walking away from repayment of the Loan without any penalties whatsoever.
Such financial instruments that can be used as the underlying security for collateral in a Stock Loan (i.e. a Loan-Stock Instrument (LSI), Loan Stock, or a Securities-Based Loan) include — but are not limited to — Stocks, generic Mutual Funds, Mutual Funds based on Stock Indices such as Dow Jones Industrial Average (DJIA), Currencies, different kinds of Derivatives like Futures, Forwards, and different kinds of Options, etc. The mathematical pricing model outlined by A. Morozovsky, R. Narasimhan, and Y. Kholodenko (2000) is equally applicable to all these cases.
As a financial instrument — contrary to the traditional Loan — the value of a Loan-Stock Instrument (LSI) is coupled to (and therefore depends on) the value of an underlying Stock. A Borrower borrows from a Lender a given Loan amount based on the terms and conditions of the Loan-Stock Instrument (LSI). The Borrower then makes periodic payments based on the value of the underlying security and the amount borrowed.
This means that if the underlying security price increases, the value of the new Loan-security will decrease in such a way that the sum of the two amounts will grow exponentially in time with the same rate as the fixed-rate Loan would. The opposite is also true: if the Stock price decreases then the value of the new Loan-security (i.e. the amount that the Borrower has to repay) will increase in such a way that the sum will again grow in exactly the same way as the traditional fixed-rate Loan would.
A Stock Loan (i.e. a Loan-Stock Instrument (LSI), Loan Stock, or a Securities-Based Loan) is beneficial for both the Borrower and the Lender. For the Borrower, the LSI is more attractive than the traditional Loan because of the decrease in the amount that has to be repaid (i.e. as the Stock value rises over time on average). An additional benefit of a Non-Recourse Loan is that the Borrower always has the option of walking away from repayment of the Loan without any penalties whatsoever.
Where to Find a Lender Willing to Give You Liquidity?
Therefore as banks continue to foreseeably tighten access to Credit and Liquidity, where can you go to find the Liquidity Solutions that you need when you need them? If you are fortunate enough to know a Private Lender willing to lend you the Money that you need to provide solutions, then nearly always a Private Lender is preferable to a Bank.
For the Borrower, borrowing from a Bank is some of the riskiest type of borrowing as a Bank not only has Full-Recourse to collect all outstanding debt on the Loan, but a Bank can call out (or call in) a Loan (i.e. make a Loan Call on a Call Loan or a Callable Loan) at virtually any time for virtually any reason.
Banks like to lend money to people who don’t need the money. So when you need Money and Liquidity, where (and how) are you going to find it? Who is going to lend to you Liquidity without Personal Guarantees (PG), credit checks, income verification, Loan Covenants, etc.?
If you own Stock/Equity/Securities, then chances are we can help you.
ZZStockLoans.com — We Solve Problems. We Provide Solutions: We Provide Liquidity, Finance, and Money Solutions.
Unlike Banks, we as Private Lenders offer you instant Liquidity with absolutely no Loan Covenants, no Personal Guarantees (PG), no Balloon Payments, no Fire Sales, no Call Provisions, and no calling in the notes whatsoever. In fact, since our Loans are Non-Recourse Loan Products, you can even walk away from the Loan (e.g. as an investment exit-strategy) the day after receiving the Loan Proceeds and never make a payment — with no financial penalties whatsoever.
All of our Loans are Non-Recourse Loan Products which means that the Borrower is not personally liable, and has no business liability beyond the stocks pledged as collateral — therefore the Borrower is safer with a Non-Recourse Loan, and has more options and security than a Full-Recourse Bank Loan or a Margin Loan. Our Non-Recourse Loan Vehicles require no credit checks and no financial statements whatsoever other than the Client/Borrower’s Brokerage Account Statement to prove ownership of the securities.
All of our Loans are LOW FIXED-INTEREST %, and not tied to variable interest rates such as the London InterBank Offered Rate (LIBOR) — which is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans — or Prime Rate which is the interest rate that commercial banks charge their most creditworthy corporate customers. This Prime Rate should not be confused with the Federal Funds Rate which refers to the interest rate that banks charge other banks for lending to them excess cash from their reserve balances on an overnight basis.
So where are you going to find and obtain the Liquidity that you need quickly in order to solve whatever your problems may be (cf. Ecclesiastes 10:19) — in trade, business, investment, or perhaps for personal needs — that require Liquidity Solutions?
If you have a liquid, publicly-traded Stock (or other tradable Security) on any major Stock Exchange worldwide, chances are we can help you. We specialize in providing quick-funding, Securities-Based financing solutions specific to our Clients’ needs. We offer the widest variety of Stock Loans and Securities-Based financing solutions in the industry, and we are flexible where others (most especially Banks) are not so.
More information and details are available at the following URL:
ZZStockLoans.com
STOCK LOANS FAQs: ZZStockLoans.com/index.php#faqs
References:
2.) Investopedia.com
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