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With a slowly thawing credit market playing havoc on personal lending, the EFH Executive Lending Survey, a survey of the borrowing activities of current and former officers of U.S. publicly traded companies, found a high use of securities-based lending among U.S. executives.
According to the study of over 400 executives conducted by Equities First Holdings (EFH), a leading full-service, non-purpose securities lender, 87% of the participants were familiar with securities-based lending, and nearly three-fifths (57%) of executives said that they would recommend this financing option to a close friend for business or personal use. Nearly one-fifth (19%) of executives surveyed pursued a securities-based loan.
“Securities-based lending offers a host of advantages to borrowers who have been stymied by traditional lenders,” said Al Christy, Jr., President and CEO of EFH. “These loans are versatile, can provide a rapid source of working capital for a business or an individual with a specific need, and do not have the penalties associated with margin loans or the high interest rates that come with credit cards. EFH has seen a significant lending expansion in the last two years in the U.S. and abroad, as executives seek liquidity solutions during the anemic economic recovery.”
High-Rates Paid for Funding
Some 53% of the survey’s respondents said they have executed a loan over the last three years. The financing options used by executives included a personal loan from a bank (23%), a second mortgage on their home (17%), refinancing a primary mortgage with cash out (16%), and credit card loan (16%).
Respondents fell into four groups: President or CEO (21%); CFO, COO, CIO, CMO, or CTO (24%); SVP or EVP (26%) and VP (29%).
Looking at future lending, in the next twelve months 29% of the respondents said that they plan to obtain a personal loan from a bank, 21% plan to refinance with cash out, and 17% plan to obtain a credit card loan as methods of financing.
Those likely to seek a credit card loan are current or former CEO or President (26%), followed by Executive Vice President or Senior Vice President and CFO, COO, CIO, CMO, or CTO, (23% each). Of those who said they are likely to obtain a personal loan from a bank, 34% are current or former CFO, COO, CIO, CMO, or CTO, followed by President or CEO (33%). Executives looking to refinance with cash out are evenly divided between CFO, COO, CIO, CMO, or CTO and EVP or SVP (32%).
Investors can pay significantly more for traditional loans compared to alternative vehicles. A personal loan from a bank typically carries an annual percentage rate of 8.99%, and a refinance rate from a bank is typically 3% over a 15 year rate.1 To compare, if approved by what could be several credit committees, a borrower seeking a $100,000 loan from a bank will pay approximately $3,000 per year over 15 years. Those loans might also require the approval of several credit committees. A borrower entering into a securities-based loan seeking $100,000 could receive up to 80% of the securities’ value ($80,000) and would pay approximately 4% per year ($4,000) over a typical three-year term.
When asked to identify the most important features of a securities-based loan, the top responses were low interest-rates (47%); the possibility of an 80% loan-to-value (LTV) ratio of the security (34%); and the option to walk away with no recourse if the security fell below the set loan-to-value default level (25%).
A securities-based loan uses equities or bonds as collateral for a non-purpose loan ranging from $100,000 to $10 million, depending upon the borrower. Maturities usually range from two to three years, generally carry lower fixed interest rates (typically 4% or less), the shares are typically non-marginable, and often have loan-to-value ratios of 70% - 80%. Virtually any publicly traded stock can be used as collateral for the loan and there are no restrictions on how proceeds are used.
Respondents reported the average size of their securities portfolio to be $959,000. Nearly one-third (32%) of those have portfolios in excess of $1.5 million, 14% said they have portfolios valued between $1 million to $1.5 million, while 38% of the respondents reported portfolio values ranging from $250,000 and $999,000.
Of the 401 respondents, 36% are former officers of public companies now working in privately held firms; 35% are currently officers of public companies; and 28% are former officers of publicly traded companies.
Some 52% of the companies at which the respondents work had more than 2,000 employees. On average, the respondents have worked at companies that have been in business for 14 years.
The average revenue of the public companies in which the officers served was $918 million.
The survey was conducted in late July 2012 by Echo Research and has a margin of error of 4.89% at the 95% confidence level.
About Equities First Holdings
Headquartered in Indianapolis, Indiana, Equities First Holdings (EFH) is a securities-based lender for institutional and individual clients. Through EFH’s straightforward process, clients are able to gain fast access to liquidity at below-market rates by using securities as collateral. Since its inception in 2002, EFH has completed over 600 transactions for clients ranging from global financial services firms to high-net-worth individuals. To learn more, please visit www.equitiesfirst.com
About Echo Research
Echo Research (www.echoresearch.com) has a 23-year track record in communications research – media content analysis, stakeholder evaluation and reputation measurement. Echo is now part of Ebiquity plc. Echo and Ebiquity are leaders in above- and below-line communications tracking and research, providing independent data-driven insights to the global media, CMO and CCO community to continuously improve clients' business performance.
1 Citibank Personal Links & Loans Rates for New York State, https://online.citibank.com/US/JRS/pands/detail.do?ID=PersonalLinesRates