Shares Loan

Loans against shares — using equity for a choice

It is the question for every financial analyst or stock exchange investor since the beginning of the world recession in 2008: is it better to take a loan or to release some shares on the stock market in order to get some liquidity?

As the question is delicate, the answer depends from case to case. However, there are some advantages and disadvantages for both methods, so it is better for you to know some basics about them:

Loans

Everybody knows what a loan is. However, since the financial crash in 2008, people have circumspections about them. As the president of a huge company, or even as the owner of a small company that needs cash, you should not be afraid of this option. Be careful about the purpose of the money. Every financial analyst would tell you that this period is the best for investments.

If you are taking a loan to pay the salaries of your staff and to buy materials, you are surely going for a crash. However, if you are taking the money to buy a smaller rival company with huge potential, you can be sure that the money will come back to you doubled or tripled after the crisis is over.

Releasing shares of your company on the stock market is another method to get some cash. The advantages of this method are: it is not risky ( you won’t borrow money from anyone, and if you won’t have a profit, you won’t have to pay the shareholders. In addition, the method will increase your visibility and liquidity on the stock market.

The major disadvantage of this method is that maybe you won’t get the estimated money. Your specialists might regard your shares too high, and you will find half of your company sold to the shareholders for nothing. You won’t gather the required sum for further investments, leading your company to a crash that will affect you and the shareholders also.

Loans against shares

As a conclusion, the choice remains to the manager and the current shareholders. Are you willing to increase the number of shareholders? Do you want to sell more than 15 percent of your company to a single shareholder (in this case, he will have the right to vote in the General Gathering of the Shareholders)?

On the other hand, maybe you want to take a loan, along with the risks involved (bankruptcy, lack of results and liquidity problems). Check the current financial situation, reflect on the possibilities, talk with the current shareholders, and make your decision accordingly.