HedgeLender FAQ: Answers to Common Questions.

(Last updated January 24, 2010)

Note: Please use our contact form for any questions that you may still have.

[ Can you explain in a simple way how your institutional loan program works? ]

Our institutional stock loan product is handled entirely between a licensed account advisor at your lending institution and yourself. You are taken into the loan facility at the major U.S. SIPC-member brokerage/bank that will operate as your lender for your transaction, and you will finalize the terms of your loan prior to issuance by the institution of your loan documents.

There is absolutely no obligation to undertake any form of loan or any financial transaction of any kind until and unless you choose to proceed to signing your loan documents, after which the loan documents will govern your transaction entirely.

These loans are those where your securities remain in your account and title throughout the loan term, accessible to your review online or in person as with any modern brokerage account. Your lender's role is to underwrite the loan, issue the loan documents, support you with financial, securities, or loan-related advice (as with any licensed U.S. brokerage/bank), and respond to your questions, inquiries, and record requests. Our role is to introduce you to the loan facility, and to ensure that it operates to your satisfaction. We will deliver to you a no-obligation Term Sheet at the outset that you will sign prior to working with your institutional lender.

The loans are simple lien-type loans, and shares are not sold to fund the loan. As fully regulated financial institutions, they are required by law to adhere to the letter of the law in every respect, and no steps of any kind can ever be taken with your assets without your full consent for these loans.

The loans can be repaid any time without penalty. Once your account has been opened at your lender (same day in many cases) and your shares have transferred into your new account, your loan documents will be issued by the institution for your review. Once signed, your loan funds will be deposited into your account and the securities used as collateral in your account for the loan will receive a lien requiring that that not be traded or sold until the loan has been paid. Upon repayment, the lien is lifted.

Rates are very low, and a line-of-credit feature means that you may apply to receive additional loan cash should the collateral securities increase in value during the loan term. You may also apply to "swap collateral" - substituting stocks of comparable value and quality with those securing your loan. Both of these options require lender approval.

To get started, simply contact us and let us know what securities you'd like to pledge and include your contact information. A representative will be in touch with you by phone shortly thereafter to begin developing your loan quote and to answer any further questions prior to issuance of your Term Sheet. Note please that a valid account statement, which will be held in strict confidence per our privacy policy, is required at the outset to confirm share ownership.

[ Is there any advantage to a larger portfolio of securities as opposed to a smaller one? ]

In principle, the stronger and healthier the securities in any portfolio, the more loan options and flexibility will be available in the final loan contract. "Stronger" for purposes of these lending programs would include this criteria:

1) Price and history. A price over $9 a share and a long history of trading are very advantageous.

2) Size of portfolio. A portfolio valued at over $1 million is usually more attractive as loan security.

3) Volatility. If the price has been stable, rising and falling relatively slowly or rising steadily over time, this is a plus.

Stocks that tend to have less quote flexibility include those with a brief history of public trading, those under $1 a share, or those representing companies that have suffered recently (e.g., General Motors at one point in 2009).

If you are unsure of the quality of your portfolio, simply contact us and let us review. We'll have quote or at least a response back to you forthwith.

[ Does your company have anything to do with hedge funds? ]

No. HedgeLender LLC has no connection to any hedge fund or funds. We are a loan facilitator only - we have worked to develop relationships and lending concepts that allow us to introduce attractive securities-based loan facilities to those seeking an alternative to the sale of their securities.

To this end it should be pointed out that "hedge" in our name (HedgeLender) was chosen to refer to the simple dictionary definition of "hedge" (definition here), the same one in common vernacular use when one says "I hedged my bets today by bringing an umbrella in case it rains." We chose to use the word in this way for our company name because our original loan program was referred to as "HedgeLoan" - a loan in which the portfolio was designed to be hedged against loss in the case of default. Hedge - to take actions to reduce risk; Lender - we work with lending firms that can provide the level of service we require.

(Side note: Our securities finance services are unrelated to any activities involving "stock finders" or stock short-sellers. We are not stock finders but rather loan facilitators, and we do not solicit investment or any form for securities purchase, securities sales, or financial advising whatsoever.)

[ What about security issues? ]

Security is paramount these days, and HedgeLender LLC supports the efforts of federal and state regulators to ensure a safe, secure financing environment for business and consumers both large and small. When new guidelines, instructions, or regulations are promulgated, we work to quickly comply to ensure that the best possible securities finance services are available to our valued clients.

To this end we've oriented our company away from loan types perceived by many to carry more risk - those involving the transfer of title - in favor of loan services where shares remain in client title and account at all times. To effect these, management is provided through major U.S. SIPC-member institutions with licensed professional advisors who handle all aspects of the loan, from account opening to loan documentation to recordkeeping as is common with any major U.S. brokerage or bank. Though the loan itself is a feature-rich custom structure, the account, loan contract, management, etc. are no different from those of any fully regulated U.S. financial institution. We've done our best to introduce only those programs that will provide the familiar feel of a modern brokerage institution.

We hold ourselves to the same standards that apply to anyone else in this industry. It is HedgeLender's position that any regulatory action that helps to ensure a safer, more secure environment for the American public is good for our clients and our industry. The strength of the American economy is based in large part on a tradition of financial innovation, and such innovation cannot thrive when and if it is abused.

HedgeLender LLC remains confident that the SIPC-member institutional lending structures we facilitate today are of the very highest quality in the financial industry in terms of management, asset protection, flexibility, and security. However, wherever and whenever we can improve our services, we will continue to take steps to promptly do so.

[ What about the use of loan proceeds. Are there any restrictions? ]

You can use the loan proceeds for any legal purpose other than the repurchase of marginable securities such as stocks. This is a function of regulations derived from 1934 Securities Act designed to ensure that individuals were not pyramiding margined securities loans upon each other.

So other than purchasing marginable securities with your loan proceeds, there are no realistic restrictions under normal circumstances. For example, one could use 50,000 shares of IBM to secure a loan through this facility, and then place those proceeds into an oil and gas investment, paying interest payments on the loan and paying off the principal at loan maturity when perhaps the value of the collateral will be worth more. (In such scenario you can, if you wish, work with your licensed account advisor to sell a portion of the securities to pay off the remaining obligation; or you might exercise the option if you authorized one to be structured into your loan; or avail of the success of your oil and gas investment for the cash to pay off the loan and lift the lien on your shares.)

We remind clients considering our loan programs also that our loans cannot be used as tax avoidance tools and that the proceeds should be reported properly per IRS and SEC guidelines and policy. This applies also to corporate insiders using their loans for PIPE or business expansion financing, for example. These loans represent powerful and flexible securities liquidity tools, but they are not tax shelters. Please consult with a licensed tax professional for guidance on tax matters.

[ What is the eligibility criteria for stocks? ]

The program accepts mutual funds, municipal bonds, Treasury bills, REITs, Fannie Mae/Ginny Mae CMOs, and a wide variety of other securities as well as U.S. and foreign stock. Not accepted: Medium-term notes, bank guarantees, foreign bearer bonds, or letters of credit etc. Virtually any legitimate, verifiable security is eligible provided that it has an active market. accept. Restricted stock: Rule 144K restricted stocks may be accepted provided that the equivalent free-trading stock otherwise meets eligibility criteria. Foreign shares are also eligible provided they trade on transparent, "quality" markets.

The value of the portfolio at inception should be at least $50,000.

In every case the best way is to contact us for an initial review.

[ What kind of credit score do I need to qualify for a HedgeLoan? ]

None. Your loan offer is determined solely by the quality and value of your collateral. If a credit score is pulled as part of the ability-to-service loan and identity verification process -- confirming your identify and your ability to service your loan -- it will not be used to determine the characteristics of your loan offer.FICO scores or appraisals are likewise not typically used. Interest rates, for example, are not affected by net income or personal financial statement data or past bankruptcies. (Note that all forms of current assets/net worth may be used in assessing "ability to service.") In practice, few borrower applicants in these loan facilities are unable to meet these simple standards.

Please note that in compliance with Patriot Act and Homeland Security requirements, foreign applicants will be required to produce a copy of their passport and may be asked for other identification-confirmation documents prior to proceeding. HedgeLender uses the multi-database URU money laundering and background checking system and PACER to comply with international identify verification standards in the initial application stages of your loan process. Beyond this, a copy of an account statement verifying the securities to be pledged is required for a firm quote and term sheet if you are a foreign client or utilizing foreign shares as part of your collateral in any way.

[ Do my stocks or other securities have to be in electronic (DTC) format?]

None of the loan programs offered through HedgeLender allow for lending unless and until the securities have been converted into electronic ("DTC") format, the common and usual industry standard in use by all securities firms in the U.S. use for clearance and transfer. Your own brokerage, or your licensed institutional advisor can assist you with this step if you own stock certificates. Let us know in your inquiry and we will provide you with information on the certification conversion process, which is quite simple but may take several days to complete.

Note that the conversion process has several fraud-prevention steps built into it, making it virtually impossible to convert a bogus certificate into electronic stock shares.

If you have stocks in a common brokerage, your shares are almost certainly already in electronic format and you need do nothing. This step is only for those who have traditional stock certificates.

[How long until borrower receives his loan cash?]

Very quickly. With all of our institutional loans, the standard is between 2-3 days from the signing of your loan documents as the loan is processed into your institutional lender's systems.

Most of the timeline will depend on the borrower however. If the new account is open and shares have transferred (your lending institution's licensed advisor can help with most of this), and you have agreed to the terms of your loan contract, then funds delivery is very rapid.

[ What happens to my stock's dividends while you hold the shares? ]

Dividends are paid directly to you or they may be credited against interest due, whichever choice you prefer. This applies regardless of how small or large a dividend may be, and includes large-dividend stocks such as REITs. The choice is yours as securities owner; discuss your options directly with your licensed account advisor following receipt and signing of your no-obligation Term Sheet.

[ How will my shares be voted? ]

At all times, you can vote them directly as you normally would, if you wish. As with any voting arrangement, you may choose also to vote with management or by proxy.

[ What is the role of interest in your institutional loan program structure? ]

Interest acts exactly as any interest on any loan does; it represents a profit to the lender for allowing the borrower use of lender's cash, i.e, it serves as the effective cost of the loan.

[ Are there any hidden costs or fees? ]

No. There are no hidden fees. HedgeLender LLC is well-known in the financial and securities industries for being plain spoken, approachable, and transparent on all fee-related issues, which are very reasonable and clearly disclosed on your no-obligation Term Sheet at inception.

Please remember that inquiries are always free, as are Term Sheets, and as an A+ rated (Better Business Bureau) company proud of our ten years of dedicated customer service, we will always work overtime to ensure that the loan your receive closes to your satisfaction.

[ I am a foreign resident. Is there any I should be aware of in the application process? ]

Our institutional loan program is available for selected major-market foreign exchange securities, and HedgeLender LLC is happy to facilitate financing for our foreign clients. If you are uncertain if the securities in your home market can qualify, simply simply send us your inquiry using our contact form.

Please note that foreign clients must be willing to produce a clearly legible photocopy of the front and back covers of their passport and undergo a URU multi-database international criminal and money-laundering background check prior to proceeding with funding, as well as other checks as necessary for compliance with U.S. Patriot Act and related U.S. law.

[ Is your loan facility available to corporate affiliates ("insiders")? ]

Yes, with compliance provisos. Affiliates or "insiders" (directors, CEO's, owners of 10% or more of outstanding shares of the collateral stock to be used) will operate under SEC DRIP limits on the total number of shares they can place into any of our securities financing in a given 90-day period. This number is set at the greater of either the prior average four week (trailing) trading volume, or one percent of the total outstanding shares. (See www.sec.gov for further descriptions and details). HedgeLender requires all borrowers who meet the definition of an insider/affiliate to properly report these transactions per SEC regulations on SEC Form 4.

[ How can I be sure my stocks will be returned upon repayment? ]

Actually, your shares never leave your account at the fully vetted, top-tier, major U.S. brokerage with which you have your loan, and the institutions used for this loan facility are household names you will quickly recognize.

So there is no need for any "return". Your shares in this institutional loan program remain in your account and title at a major U.S. institution, accessible and visible to you at all times as with any brokerage account, and are not sold or traded to fund your loan. Even though you may not modify, sell, or trade them until your loan obligation is repaid - they are in that sense frozen in your account while they collateralize your loan - they remain yours.

Online 24/7 access means your collateral shares are always visible through the online access system of your institutional lender. If you so choose, you may also opt to receive monthly statements.

When you repay your loan, the lien is simply removed on your shares in your account, and you can once again trade or sell them just as you always would. Should you wish to shut down the account entirely, you are free to do that as well. So the short answer therefore is that "return" of your shares is as simple as the removal of the bank/brokerage's lien on them when you repay your loan. In reality, they never left your account or title.

[ Can I prepay - that is, pay off - my Stock Loan or Securities Loan early? ]

Yes, you can prepay any time with any of these facilities - even a week after closing - with no penalty whatsoever. Simply notify your licensed account advisor.

Note that a "line of credit" style facility (with lender's consent) can be created by either paying down the principal or having your shares grow in value over time as an alternative to early payoff.

Contact us for more specifics that can apply to your portfolio and loan program.

[ Do I get regular account statements? ]

Yes. Account statements will be delivered to you monthly directly from your brokerage/lender (no third-party intermediaries) at your request as with any normal bank or brokerage account. You can also usually receive these electronically or by regular mail, or both. Discuss your preferences directly with your account advisor after you've signed and returned your Term Sheet.

[ What are my exit options at loan maturity? ]

As noted, you can always pay off your loan at any time. You may also renew your loan, or ask lender to sell sufficient shares to pay off the loan leaving any remainder in your account. If necessary, you may also exercise your right to default, that is, to walk away from your loan repayment, thereby executing the limited-recourse function and surrendering the shares.

There are many custom exist options that you are free to discuss with your licensed account advisor.

[ Whom do I contact if I have questions during the loan term? ]

You may call us at HedgeLender LLC at any time with questions; or you may speak with your licensed account advisor after you have returned your Term Sheet to us. Please use our Contact Form to reach us and get started. Note that all active clients will also have have access to a direct, toll-free "fast response" number at HedgeLender enabling them to reach any of our staff quickly.

[ Does the lender ever sell any of my stocks to fund my loan in at any time? ]

No. With these institutional loan facilities the lender cannot sell your stocks to fund the loan and cannot remove your title to the shares. Your shares remain in your account where you can view them at any time, 24/7. If you should default on your loan and surrender your shares, then and only then will the shares become the property of the lender.

[ Is there any way to lower my interest rates? ]

Yes, in some cases. Larger portfolios can typically be assured of better terms and rates, though these can also be available to smaller portfolios with diverse holdings and quality securities of all types depending on overall portfolio quality.

If you have further questions, please just fill out our contract form and a representative will call you today.