Unlisted Stock Loans

Unlisted Stock Loans

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What are Unlisted Stock Loans?

Unlisted Stocks in some scenarios 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 stock loans.

Key Points About Unlisted Stock Loans:

1. Collateral: The borrower uses unlisted shares as collateral for the loan. Since unlisted stocks are not traded on public exchanges, they may be more difficult to value, making the loan process more complex than with listed stocks.

2. Valuation Challenges: Since unlisted stocks do not have a readily available market price, their value is determined through private valuation methods. The lender will often rely on third-party valuations, financial reports, or other metrics to determine the loan amount.

3. Loan-to-Value (LTV): The loan amount is typically lower compared to listed stock loans, due to the illiquidity and valuation uncertainties of unlisted shares. Lenders may offer a lower loan-to-value (LTV) ratio, often 20% to 70% of the assessed value of the unlisted shares.

4. Ownership Retention: The borrower continues to own the unlisted stock but must hand it over to the lender as collateral. They can still benefit from the future success of the company if the stock appreciates in value.

5. Non-Recourse: Some unlisted stock loans may be non-recourse, meaning the lender’s only recourse is to sell the unlisted shares in the event of default. If the value of the unlisted stock drops, the borrower is not personally liable beyond the collateral.

6. Target Market: These loans are often used by founders, directors, early investors, or private equity holders who want to access liquidity from their unlisted shares without selling them, especially if they expect the stock to appreciate significantly in the future (such as during an eventual IPO).

Use for Unlisted Stock Loans:

• Business Expansion: Entrepreneurs may use unlisted stock loans to raise funds for expanding their businesses without diluting their equity.
• Personal Liquidity: Shareholders in private companies may use these loans to unlock personal liquidity for investments or large expenses.
• Pre-IPO Financing: Owners of pre-IPO shares may use unlisted stock loans to access funds before the company goes public.

Find out how our panel of Specialist Finance Brokers can assist in finding the right deal for you.