Financial Services & Investments

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Financial Services

Securities Based Lending

What is it?

Securities based lending is a cost efficient and convenient way of getting financing compared to a mortgage or a traditional bank loan. Funding services are provided on amounts above $100,000. For smaller amounts check out the Small Business Lending program. This is a USA based financial services institution providing services for US residents and US publicly traded securities. TLi has an agreement (NCND) in place as an indepedent service provider.

Why use it?

An example using a traiditional mortgage loan comparison:

Instead of aiming for a high loan to value (LTV) percentage resulting in a high debt to income (DTI) loan, use a security loan for some or the entire purchase price. The security loan is not a lien on the property and as a result not part of the LTV.

How does it work?

 You borrow money against publicly traded securities papers using them as collateral and security for your loan.

Step 1: Read the Product Handout

Step 2: Fill out the QuickQuote Handout

Step 3: Send the QuickQuote Handout request to Send Mail and you will get your proposal


See the frequently asked questions (FAQ) for more information.

FAQ

  • Is there a restriction on the use of the loan proceeds?
  • If the stock has a dividend during the loan will I receive it?
  • Is the transfer of the stock for the loan a sale? Are there taxes associated with the transfer of the stock for the loan?
  • Who owns my stock during the loan? or Who has title to my stock during the loan?
  • Is the interest I pay deductible like a mortgage?
  • What happens if I default on the loan?
  • Is there any tax consequence should I default on the loan?
  • Am I personally liable for this loan or can the company come after me on this loan if I do not make the payments?
  • Is this loan reported to the credit bureaus or reporting services?
  • What happens if I fail to make my required interest-only payments on the loan?
  • What if the value of the stock falls significantly? Or What does this default provision in the loan mean?

Q.: Is there a restriction on the use of the loan proceeds?

 Answer: A borrower may do anything with the loan proceeds he chooses except to purchase other securities with those funds.

 Q. If the stock has a dividend during the loan will I receive it?

 A. The borrower receives a credit against the interest payment of all amounts equal to dividends, interest or other distributions on the stock during the term of the loan thereby increasing the borrowers cash flow.

 Q. Is the transfer of the stock for the loan a sale? Are there taxes associated with the transfer of the stock for the loan?

 A. No, this is not a taxable transfer. This type of transaction is specifically addressed in Internal Revenue Code § 1058 which specifically states that taxpayers who enter into a qualifying stock lending agreement receive non-recognition treatment with respect to any gain or loss at the time of the transfer of the securities. This section provides an exception to the general income recognition principles of Section 1001 of the Internal Revenue Code. This is a common transaction in the financial markets.

 Q. Who owns my stock during the loan? or Who has title to my stock during the loan?

 A. The stock is transferred to the holding company which has full title, but the borrower retains all beneficial interests in the securities. The borrower will receive credit for any dividends, interest or any other benefits that flow from the stock during the term of the loan.

 Q. Is the interest I pay deductible like a mortgage?

 A. The answer to this question is entirely dependent on what the borrower does with the loan and how they structure the loan. The borrower will have to consult with their own tax advisor for the final answer. However, there are generally recognized rules which we can share.

 I. Interest on ordinary personal debt, like a credit card, is not tax deductible. No deduction is allowed for personal interest.

 II. In regard to mortgage interest, this is only deductible if the debt giving rise to the interest is secured by a mortgage on the taxpayer's qualified residence. Since the loan is a non-recourse loan and not secured by a mortgage, the interest does not qualify for the mortgage deduction.

 III. A borrower may be able to take a tax deduction for interest paid on a loan to fund business or investment activities; to the extent investment income exceeds investment interest. So, under the Securities Lending Agreement, where the borrower invests the money and pays interest to the lender, the borrower's interest payments could be tax deductible as investment interest. Likewise, interest payments may be tax deductible if the loan proceeds are used for business purposes.

 Business or Investment activities could be considered as:

 a) interest paid or accrued on indebtedness properly allocable to a trade or business;

 b) any investment interest, which generally includes interest paid or accrued on indebtedness properly allocable to property held for investment; and

 c) interest taken into account in computing income or loss from a passive investment activity.

 The borrower should consult with his or her tax advisor prior to entering into this loan if this is a concern. There are simply too many individual variables and circumstances for us to give any kind of tax advice. This is not tax advice, but only a general discussion of the issues.

 Q. What happens if I default on the loan?

 A. On a non-recourse loan the borrower has no personal liability. The stock is simply forfeited.

 Q. Is there any tax consequence should I default on the loan?

 A. There are general rules we can share regarding tax treatment of a default. The amount realized is the difference between the loan amount and the cost basis in the stock.

 Example:

 1) Assume the market value of the stock was $150,000 and the loan amount was $100,000.

 2) Assume the borrower had a cost basis in the stock of $20,000.

 3) The amount subject to tax is the difference between the loan amount $100,000 less the cost basis $20,000. The amount subject to tax is $80,000.

 Q. Am I personally liable for this loan or can the company come after me on this loan if I do not make the payments?

 A. No, this is a non-recourse loan; we cannot come after you personally. There is no personal liability associated with this type of loan. The only security for the loan is the stock and the only recourse the lender has is against the stock. The borrower has no personal liability exposure.

 Q. Is this loan reported to the credit bureaus or reporting services?

 A. No, the loan is not reported to the credit bureaus and there is no public record of this loan. Even if the borrower elects to walk away from the loan and default because, for example, he or she has more money than the stock is worth, it is not reported.

 Q. What happens if I fail to make my required interest-only payments on the loan?

 A. If the borrower does not make the interest payments when due or fails to repay the principal when due, the lenders only recourse is against the stock. The loan will be terminated and cancelled. The borrower gets to keep the money received for the stock and the lender gets to keep all interest in the stock. The default or termination is not reported to any credit bureaus.

 Q. What if the value of the stock falls significantly? Or what does this default provision in the loan mean?

 A: If the value of stock falls below the agreed minimum value in the contract, then there is an event of default. The minimum value is 80% of the loan amount.

For example, assume the stock had a full market value of $10 per share when the loan was made. Also, assume the loan terms established a 70% LTV, so the loan was for 70% of the full market value or $7 per share. If the value of the stock falls below 80% of the loan amount, here $7, then there is a default which can be cured by the borrower. In this example, the share price would have to go below $7 x 80%, or $5. 60 per share. For a default to occur, the share price in the example must fall more than 44%.

 While the interest rate and interest payment remain constant, due to the volatility of the collateral, the borrower may be required to contribute additional cash or shares to maintain the collateral value at 80% of the amount borrowed. The decision to tender additional cash or securities is solely in the borrower's hands. The borrower could choose not to risk more capital and terminate the loan or the borrower could choose to keep the loan in good standing by curing the default caused by the loss in value of the collateral.

The additional cash or shares tendered to cure the default do not become part of the collateral for the loan and are not subject to repayment or refund at any time. At origination, the borrower and the lender agreed to a minimum fair market value for the collateral of the loan. The payment of the additional cash or securities establishes a new lower minimum fair market value and higher risk threshold for the lender and borrower alike. Those funds buy-down the price of the security to set a new floor for the stock and thus maintain the minimum value ratio between the amount of money loaned and the minimum value of the security for which the lender is willing to be at risk.

Summary

All you have to do is 1, 2 and 3;

Step 1: Read the Product Handout

Step 2: Fill out the QuickQuote Handout

Step 3: Send the QuickQuote Handout request to Send Mail and you will get your proposal

Small Business Funding

Quick Business Loans

Fund your business:

  • A loan at a rate of 5% with no prepayment penalty
  • Minimum of $40,000 and a maximum of $1M for a duration up to 20 years
  • Fast turn around time within 24 hours
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Business Investments

Invest on Cyprus and get an EU (Cyprus) passport

Cyprus has changed the legislation and enables foreign investors to become a Cypriot (EU) citizen and obtain a Cypriot passport through naturalisation.

An EU citizen is any person who holds the nationality of an EU country. EU passport holders are entitled to enter, reside, study and work in the European Economic Area (European Union, Iceland, Liechtenstein and Norway) and Switzerland without a visa.

Some benefits:

  • Cyprus allows dual citizenship
  • Visa-free travel to 157 countries
  • Free trade within EU, business access to 500 million people
  • No language requirements, medical testor interview
  • No physical residency requirement
  • Cyprus has no inheritance tax, has a highly favourable corporate tax structure and a comprehensive double tax treaty
  • No tax consequences, unless you opt to become tax resident in Cyprus
  • Exit Strategy after 3 years

How does it work?

Step 1: Read the Investment Brochure

Step 2: Contact Thomas Lidforss International today for your initial consultation by filling out the form below

Step 3: You will be personally contacted from Cyprus

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