Goldwyn Capital
If most of what you own is one stock, the first thing you want to know is how much cash you could raise against it. For a non-recourse stock loan arranged through Goldwyn Capital, the short answer is 30 to 50% of the market value of the shares you pledge, for a loan between $50,000 and $5 million.
Where you land depends on a few things the lender looks at. One of them, a ceiling tied to the company’s share count, matters most to people who own a large stake in a small company.
The starting point: share price and the cash percentage
The lender starts from the market value of the shares you pledge: the number of shares times the share price. You receive 30 to 50% of that value in cash.
So 500,000 shares at $4.00 is $2,000,000 of stock, which would support a loan of $600,000 to $1,000,000. Prices move, so treat any figure you work out yourself as a rough guide.
Why heavily traded stocks get more
Trading volume is the number of shares that change hands in a day, and it affects where you sit in the 30 to 50% range. Heavily traded stocks get more.
Typically, eligible stocks trade around 100,000 shares a day or more. A stock that trades under about 10,000 shares a day usually doesn’t qualify. If yours sits between the two, asking for terms is the only way to find out.
This follows from how the loan is secured. In a non-recourse loan the shares are the only security. If the stock falls 25% below its level when the loan closed and the borrower chooses not to top up, the loan ends and the lender keeps the shares. Shares that trade thinly are harder to turn into cash. FINRA’s guide to liquidity notes that “executing a large order quickly in a low-volume security can be difficult,” and the SEC’s guide to microcap stocks says that because many trade in low volumes, “any size of trade can have a large percentage impact on the price of the stock.”
The 4.99% ceiling
The lender can take at most 4.99% of a company’s outstanding shares, however many you own.
It matters if you own a large stake in a small company, for example as a founder who took the company public through an IPO or a reverse merger, or as an early investor who still holds a big block. If your shares add up to more than 4.99% of the company, the lender can’t take all of them, and the loan is sized on the portion it can take.
To check where you stand, find the company’s shares outstanding. A US reporting company states the number on the cover page of each quarterly report on Form 10-Q. Multiply it by 0.0499 and compare the result with the shares you hold.
Which shares count
The shares also have to be free trading, eligible for resale under Rule 144, or registered.
Free trading shares are ones you could sell in the market today without restriction. Shares you bought in the public market are not restricted securities, according to the SEC.
Restricted shares are ones you got in an unregistered, private sale from the company or one of its affiliates, for example in a private placement or in exchange for putting up seed money. They usually come with a “restrictive” legend saying they can’t be resold unless they are registered with the SEC or exempt. Rule 144 is an SEC safe harbor for reselling them, and one of its conditions is a holding period: at least six months if the company is an SEC reporting company, and at least one year if it isn’t.
Registered shares are ones the company has registered with the SEC for resale, so they can be sold in the public market.
Officers and directors are control persons, and their shares need to be registered for resale. The SEC’s description of an affiliate also includes large shareholders, so if you own a big stake, ask your company’s counsel which category you fall into. Section 16 filers should expect to report the loan on Form 4 (confirm this with counsel too), and some insider trading policies restrict pledging, so read yours first.
The loan range: $50,000 to $5 million
Loans run from $50,000 to $5 million, depending on the size of the position. Working backward from the 30 to 50% range, the smallest loan takes roughly $100,000 to $170,000 of eligible stock. At the other end, $5 million is the largest loan, however large the position.
A worked example where the ceiling sets the number
Say you founded a company that now has 20,000,000 shares outstanding. The stock trades at $2.00 and about 150,000 shares a day, comfortably above the typical volume. You own 2,000,000 shares, 10% of the company, worth $4,000,000. Assume all of them are eligible.
On the value of your whole position, 30 to 50% would be $1,200,000 to $2,000,000.
The ceiling changes that. The lender can take at most 4.99% of 20,000,000 shares, which is 998,000 shares. At $2.00 those shares are worth $1,996,000, and 30 to 50% of that is roughly $600,000 to $1,000,000.
| Your whole position | What the lender can take | |
|---|---|---|
| Shares | 2,000,000 | 998,000 |
| Market value at $2.00 | $4,000,000 | $1,996,000 |
| Cash at 30 to 50% | $1,200,000 to $2,000,000 | About $600,000 to $1,000,000 |
The other 1,002,000 shares stay out of the loan. Owning more shares would not raise the figure, because the ceiling is set by the company’s share count.
What comes with the loan
The cash figure comes with these terms:
- Interest is 5 to 7% a year, simple, fixed for the term and paid quarterly. Any fees are listed on the term sheet.
- The term is 3 years. You can repay from month 24, with a penalty before that.
- Your shares move to the lender’s custody account for the life of the loan and are returned when you repay.
- Depending on how the loan is structured and where you live, transferring shares to a lender can be a reportable tax event, so talk to a tax adviser before signing.
What to have ready for a quote
Indicative terms come back within one business day of a request, and they give you a firmer number than your own arithmetic. To get them, have this ready:
- The ticker and the exchange it trades on. Shares on 52+ exchanges worldwide are accepted, and shareholders of foreign companies listed in the US qualify.
- The number of shares you want to pledge.
- How you hold them: in a brokerage account (in “street name”), in your own name at the company’s transfer agent, or as a paper certificate, and whether they carry a restrictive legend.
- Whether the shares are free trading, Rule 144 eligible or registered, if you know.
- Whether you are an officer, director or large shareholder of the company.
Goldwyn Capital puts this into your file for the lender, which makes the credit decision. Loans are funded in 7 to 10 business days.
