We live in a global economy. The interconnection of business interests around the globe makes financing generally, and global financing more specifically, more significant than ever before to the operation of a successful business — no matter where one’s business is located. Barriers to international trade are lower than they’ve been for some time, at least in many locations, and the prevalence of Internet-based commerce is slowly erasing certain geological distinctions when it comes to selling goods and services in the greater global marketplace. One question that faces all business owners, regardless of location, is how to acquire liquid funds used to handle immediate, shorter-term, day to day expenses when most of their assets are tied up in longer term investments or in the operation of their overarching business? The very global economy that makes international commerce possible has been remarkably volatile in recent years. That means many businesses, regardless of size, are feeling the cash flow squeeze. Business owners are working harder than ever to achieve the results they’re looking for and to stay solvent in these challenging times. But as the business landscape overall becomes more challenging, so too does the acquisition of credit and liquid capital. Credit markets, in particular, are tight, and it is now harder than it once was to obtain short-term infusions of cash. At least, it is difficult to do so using the more traditional and conventional methods to which most business owners are accustomed to turning when their cash flows tighten.
You’ve purchased your stocks assuming, or at least making the educated guess, that will appreciate in value over time. This provides you with a significant capital gain when you finally sell the stock or stocks in question. The problem is that, if you experience a short-term need for more liquid funds, and the funds you might otherwise have available to you are tied up in the stock investment you have made, you have little recourse to meet your immediate financial need. The prospect before you holds little appeal. You could, in order to meet your short-term cash flow need, sell off some of your securities, liquidating a some or all of your portfolio, long before you otherwise might. This is at best a stopgap, and at worst it generates a loss. If the market is experiencing a short-term downturn, you may take a loss on the investment. This loss worsens the disadvantage of selling off your long-term stock investment, in whole or in part, to meet a short-term cash flow need. The global market will continue to fluctuate, which means selling in the short term rather than waiting for your assets to appreciate could lead to serious losses over the life of those investments.
The bond market in particular is a good example of this volatility in the United States, as predicted by Kathy A. Jones for Charles Schwab. “We think the end of the Fed’s bond buying programs and the prospects for rate hikes in the U.S. will bring more volatility as the U.S. economy’s course diverges from those of other developed countries,” she writes. “For years, many investors feared that the end of the Fed’s bond-buying programs or quantitative easing (QE3) would result in higher interest rates. But since the Fed began tapering its bond purchases earlier this year, bond yields have fallen steeply. This shouldn’t be a complete surprise since bond yields also fell after the last two rounds of QE ended in 2010 and 2011. Our explanation is that during times the Fed was pursuing very easy monetary policy it raised inflation expectations, sending bond yields higher. Ending QE before there were signs of inflation or very strong growth led to the opposite result: falling inflation expectations and lower rates.”
Jones goes on to conclude, “Despite our expectation for ongoing low yields, we expect volatility to rise, reversing the trend of the past five years. By holding short-term interest rates near zero and buying bonds with an open-ended time frame, the Fed’s policies encouraged investors to move into riskier sectors of the markets in search of higher yields.
With the strong backstop of the Fed’s policies, investors didn’t demand a wide yield spread over Treasuries to hold bonds that carried greater risk, such as high yield and emerging market bonds. Yield spreads fell to very low levels and volatility declined to its lowest level in decades.”
When it comes to international stocks, however, the outlook is positive if you consider the long term, not that short term volatility (despite the turmoil in related markets). James C. Liu, CFA, writing for JP Morgan Chase and Company, in a paper entitled “Investing with Composure in Volatile Markets,” summed it up nicely. “Stock market volatility has begun to increase after several years of calm. Geopolitical conflicts, the ongoing Euro area crisis, central bank policies and the age of this business cycle are but a few reasons investors are nervous today. Overreacting to short-term news and normal market movements often leads investors to inappropriately alter their asset allocations, potentially harming their ability to achieve long-term investment goals. Rather than fear volatile markets, investors should maintain their composure by staying focused on long-term economic and market expectations… Volatility is unavoidable in investing. There are many measures of market volatility… For long-term investors, the most meaningful measure may be the largest intra-year decline (or maximum drawdown) since it represents the largest loss an investor experiences during a given year. …These drawdowns can occur over days, weeks or months. Having the fortitude to stay invested during these periods requires discipline that has often been rewarded.”
This is why international stock loans are such a great option, especially as administered by Infiniti Funding. Investopedia defines securities lending as “The act of loaning a stock, derivative, other security to an investor or firm. Securities lending requires the borrower to put up collateral, whether cash, security or a letter of credit. When a security is loaned, the title and the ownership is also transferred to the borrower. Securities lending is important to short selling, in which an investor borrows securities in order to immediately sell them. The borrower hopes to profit by selling the security and buying it back at a lower price. Since ownership has been transferred temporarily to the borrower, the borrower is liable to pay any dividends out to the lender.”
When you receive an international stock loan from Infiniti Funding, however, what are you doing is using your international stocks as collateral. You can leverage the value of your portfolio while not actually harming its long-term appreciation. This allows you to borrow the funds you require for short-term cash flow, yet allows for the continued appreciation of your stock investment. Jeff Smith of Equities First writes, “Demand for securities-based, or stock loans is growing rapidly among institutions and individual borrowers. …In this global lending slowdown, a stock loan is able to provide attractive terms in all markets. …A securities-based stock loan is also non-purpose, allowing the borrower to invest in what he or she might need… Since the loan is also non-recourse, if the value of the security has a steep decline, the borrower has the option of terminating the loan, or keeping the loan proceeds with no further obligation. If the security appreciates, the borrower retains 100% of the upside market value after paying back the original loan. In today’s market, a securities-based loan provides flexibility and favorable terms.”
If, as an international investor, you’re concerned about margin calls — a demand by a broker that an investor deposit further cash or securities to cover possible losses — you needn’t be. According to World Portfolio Loans, “Stock-based loans offer investors a type of hedging strategy. In the current volatile market, many borrowers are turning away from margin loans due to the increased risk of a decline in their portfolios, resulting in greater losses in the event of a margin call. With a stock-based loan, the borrower has the downside protection of not risking a margin call against the whole portfolio, while retaining the upside potential of the stock over the life of the loan… Most stock-based loans are relatively simple transactions. Virtually any publicly traded stock can be used as the basis for a loan… In today’s volatile markets, stock-based loans have become an attractive alternative for individuals around the globe seeking liquidity for personal and professional use. Knowledgeable wealth managers have examined stock-based loans as ways to provide liquidity to clients who may not fit a traditional bank lending profile. Because transactions throughout the industry are customized and private, there is no publicly available information regarding the industry’s size, but based on our own growth and the market dynamics, we believe it is growing at a healthy rate.”
Aditya is a business owner located outside the United States. His company is involved right now in various capital improvements and construction projects. In the past, the company’s profits have been invested heavily in various securities, as a hedge against uncertain times.
“I needed liquid cash for my business,” Aditya explains. “The only asset to which I had access was our stock portfolio, but selling off stocks would have caused us to incur significant losses. When I learned of the stock loan program, I contacted Infiniti Funding in order to secure the cash infusion my business needed, while still allowing my stock investment to appreciate over the longer term. I did not have to take a loss selling my shares off early.”
If you would like to take you like advantage of funds loaned against the value of your international shares, Infiniti Funding can provide you with a non-recourse stock loan secured by your stocks. When you engage in international stock loans of this type, your shares become collateral for the loan, as we’ve said. There is, as we say in the industry, “no recourse to the borrower” in the case of loan default. In other words, if the loan results in a default, the collateral (the shares held, in the case of international stock lending) is taken, but no further action can or will be taken against the borrower, even if the value of the shares held as collateral is less than the amount of the loan default.
It’s important to note that non-recourse loan products offered by Infiniti Funding are not available to United States citizens, nor can we issue these against securities listed in the United States. To qualify for international stock loans, the shares offered as collateral must be listed on an approved stock exchange and be free trading, common stock that is not restricted. Stocks held by corporations must be accompanied by necessary resolution documentation. There are some other restrictions that our staff can discuss with you if you think you qualify for these. There are also certain daily dollar averages that must be met, in order to ensure that the stocks offered as collateral meet minimum value requirements. Again, the staff of Infiniti Funding can discuss these minimum values with you. Please be aware also that stocks offered as collateral for these international stock loans must be free of liens. They can’t have been assigned to anyone or any third-party entity. Stocks that are not publicly listed, as well as pre-IPO stocks, are not eligible for our international stock loans, either. We can’t accept notes issued to affiliates, nor can the issuer be a shell company or some other non-reporting entity.
In a volatile global market, with tightening options for financing and more difficult credit terms, cash flow can sometimes become problematic. Infiniti Funding’s international stock loans therefore offer our international clients many significant benefits. They are highly competitive and they offer low interest (or interest-only payment structures). Loan denominations are in the currency of the client’s choice (for obvious reasons). Repayment terms vary and can be tailored to your specific needs and requirements. We would welcome the opportunity to serve your international stock loan needs. Contact Infiniti Funding today for more information.