Liquidating debt and buy back stock
Or, although you know you might qualify for […] " If you are an entrepreneur looking for venture capital, you are probably well aware of the frustrations in finding loose purse strings in the financial markets.
Or, although you know you might qualify for a loan, you do not want to take on the risk of more debt.
Generally, capital raised for new businesses takes one of two structures: debt or equity.
Debt capital is raised in the form of a loan or promissory note to be paid back at some point in the future usually with interest.
These include the potential failure of the lender to return your stock when you repay the loan, possible tax consequences if the Internal Revenue Service considers the transaction a taxable event or sales loads and fees and surrender charges if you use the proceeds to purchase another financial product, such as a fixed or equity-indexed annuity.Investors who need cash—or who want to tap the value of their portfolios without selling their investments—might be tempted to apply for a “stock-based loan,” pledging fully paid securities as collateral for the loan.As recent FINRA enforcement actions confirm, stock-based loan programs can be risky, especially when they involve “non-recourse” loans from unregistered, unregulated, third-party lenders.The lender cannot require the borrower to pledge additional securities or otherwise pay back the full amount of the loan.From time to time, brokers and other financial professionals have presented investors with a purportedly low-risk opportunity to “borrow” against their stock portfolios through a non-recourse stock-based loan program.