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What about taxes and your stock secured loan from the A. B. Nicholas network? Well there’s some good news there as well.

A typical loan for a high end asset — say a yacht or an expensive sports car — requires a lien on your asset(s), and has an impact on your credit score. That may be fine with you – after all you may buy other items via your personal credit — but should you need to halt payments for an emergency, or if you are investing in a business that fails, your credit can be ruined and you could have one or more assets foreclosed. It’s a risk you may not want to take. Reporting to credit bureaus is fine as long as your payments never have to be late or in the case of business or franchise acquisition, your business stays afloat.

An individual who sells their stock portfolio to raise cash, in addition to possibly having capital gains taxes to pay (which can be substantial depending on the trajectory of your securities), when cash is put into a business or franchise, it is 100% on the table. If your business succeed, and we all hope our businesses do, then selling you securities, even if there is a tax hit, may turn out to look like a good plan. But that’s assuming your franchise or business succeeds. Most new businesses have great difficulty getting to the magic four year mark profitably. If you gamble wrong, that cash as well as your new business or franchise could be on the line. 

Capital gains taxes, and all your cash on the line from the sale of your stocks. We could also add that you are no longer invested in the stock market after your sale, and thus should your investments rise in value later, this will be gain foregone for the future.  

Some taxes will exist regardless of our stock portfolio strategy. No American can do anything about state taxes, unless you move to a state that does not have them. Nor income tax in most cases, unless you have sufficient deductions to reduce the burden. But if concern over capital gains taxes, which kick in if you are liquidating a portfolio that you purchased at a lower price but are now selling at a much higher price, this can easily mean you’ll be you’ll be handing over a potentially sizable portion of your investments to the unforgiving hand of Uncle Sam. 

Not so with our LeverageLine stock loan network. 

Instead of selling your securities, you can treat them as an asset with value to be lended against. A typical margin loan gets you 50% of the value of your stock investments in the form of a high interest loan, with no mercy in the even your stock portfolio drops precipitously in value. The selling of enough stock to cover the amount your brokerage has lent you in the case of underwater stocks is quick and automated in most cases. There is no discussion with your stock broker, no respite from selling your stocks to cover your loan. A margin loan is designed intentionally to be limited, costly, and unforgiving, as the 1934 SEC Act intended. Following the great stock market crash in 1929, the integrity of the securities were paramount. Houses of cards built by one margin loan after another caused the domino effect of the great crash and subsequent Depression era. 

But the regulators left a large loophole for those who are NOT obtaining a margin loan, but a loan using their stocks for investment anything other than marginable securities. This provision allows the stocks to be treated simply as a liquid asset, like real estate or gold etc. The loan-to-value, greatly limited for margin loans to 50%, can go as high as 95% depending on the lender’s assessment of the quality of the stock portfolio and issues such as volatility and price history, volume of trading etc. As usual, the less risky the portfolio is deemed to be, the better loan program you are likely to obtain. 

Further, you are not a “captured client” when you use our A. B. Nicholas network for your securities-based credit line or loan. You are coming to our licensed network lenders for a loan, not necessarily for stock advice or account management etc. Therefore, interest rates are far more flexible usually. Add in the fact that we will, to the extent eligible, send the client’s application to more than one lender to play off each other and thereby deliver a better financial deal to our clients. One lender after review of your portfolio might offer a simple interest rate of 5%; another, seeing this, may offer 4.75%. One lender may offer a release of 70% LTV; another, 75% upon hearing this. Using competition, we encourage the lenders to give A. B. Nicholas clients their best terms. Once obtained, we then send the best over to you and if you wish to proceed, you may, directly with your lender. 

Lower interest rates in an interest-only stock loan from the A. B. Nicholas network of course mean more money in our clients’ pockets. High LTV (release) means more cash to invest. A strong, client-oriented personalized approach is a requirement from any lender seeking to become part of our network. 

Can your interest-only payments be deducted from your taxes, much as mortgage payments can be deducted? Much depends on what you use your loan proceeds for. Here at A. B. Nicholas we always urge our clients to examine their loan offer but talk it over with your CPA or other licensed tax professional. We know that some business investments can indeed have at least interest payments structured for tax benefits, but as we do not offer tax advice, your CPA will have more information on what is and what is not possible. Suffice it to say payments may be deductible. 

Finally, in addition to avoiding capital gains taxes that would come from an immediate outright sale, your assets — your stock portfolio — is still in the market working for you. You can still trade in the account, for example, as long as your actions don’t significantly diminish the value of your (now acting as collateral) portfolio. 

An individual funding a business with their LeverageLine, as we call it here, could after say, five years — own their business outright, keep it all away from their credit (our lenders do not report to credit bureaus), and still remain invested in the market. In this sense, the client will have put their portfolio to work for them without having to sell it or incur capital gains taxes. This means all of the value of your stocks is still working for you. Our lending network can in this way be said to allow you to potentially “have your cake and eat it too.” Yes, you’ll need to pay back your loan, but if structured properly with your licensed CPA, you may be able to enjoy certain tax deductions on the way as well. After a certain time your securities-based credit line will be paid off, your business will be funded, and your stocks will remain untouched all without capital gains taxes. Note that you can always instruct your lender to liquidate your shares to repay your loan, although that will of course trigger any taxes that might be due.

Whenever we discuss taxes if is obviously important to have a tax professional consider your circumstances, portfolio, tax liability, and other elements. However, we at A. B. Nicholas are happy to report that our LeverageLine program has saved our clients a good bit over the cost of a sale. It can make sense for you too. 

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