3 Spoke

Can I borrow against my private company stock?

Yes, you can use your stock to finance personal expenses e.g. Diversification, Buying a house etc.

Can I borrow money against my private company stock?

  • Yes! In many circumstances you can utilize your private company shares as the collateral for cash liquidity that can be used to fund personal expenses, e.g. Investment Portfolio Diversification, Buying a house, College tuition etc.
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Why would I borrow money against my private company stock compared to selling today?

  • Two things happen when you sell shares today:
  • You will pay taxes on the difference (or spread) between:
  • the cost basis of your shares (effective purchase price), and
  • the sales price
  • Depending on how long you have owned the shares prior to selling, the spread will be taxed at either long or short-term capital gain tax rates. If you have held the shares for less than one year, the short-term rate applies, which is equivalent to your income tax rate.
  • If you need a certain amount of cash today, you will have to sell shares worth your required amount plus any additional shares to account for the tax costs associated with the sale. This can mean selling shares equal to 30-50% more in value than your cash need.
  • As an alternative, 3SPOKE financing is not considered a constructive sale, and thus no tax obligations are incurred upon receipt of the financing.
  • When you sell shares today you forfeit any future appreciation that occurs in the shares you sell.
  • If your company is performing well and growth is strong, this forfeited value can be significant.
  • Having sold fewer shares when obtaining 3SPOKE financing, the better your shares perform over time, the better off you will be financially compared to selling your shares today.
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Are there any tax benefits for exercising my private company stock options now versus waiting?

  • There are several reasons why it might make sense for a shareholder to borrow funds today versus waiting for a future sale.
  • Certainly, if you have a current cash need, borrowing is a great way to accomplish Buying a house, Funding college tuition, etc., without selling your shares
  • As venture-backed companies are staying private longer, the time a current shareholder has to wait until a liquidity event can be long and uncertain.
  • Borrowing against the value of shares today can also be viewed as a partial hedge on the performance of the shares over this uncertain timeframe while providing the liquidity to achieve some Investment Portfolio Diversification.
  • If the company falters or is acquired for a value not favorable to Common shareholders, receiving some liquidity now on a non-recourse basis would be beneficial.
  • Find out what 3SPOKE can do for you

Find out what 3SPOKE can do for you

  

Tax and Legal Advice Disclaimer
3SPOKE and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.