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A recent financing rage seems to be using the SPACs or Special Purpose Acquisition Company. This is a company formed strictly to raise capital through an Initial Public Offering for the purpose of acquiring an existing company. It’s like a shortcut to large publicly traded status for the existing company. This brief shows how utilizing stock loans at the appropriate time with the company can be a significant enhancement to existing shareholders. The first premise is that once the acquisition is set up and the company is publicly trading, that the following criteria is evident:  the active business has demonstrated strong growth potential  the shares have been actively trading for at least one month  growing volume in the number of shares traded  increasing value of shares along with growing volume traded  exceeds certain thresholds of share value x 30 day average volume traded Assuming these conditions are evident, and also that the company is obviously looking for capital to foster significant growth (acquisitions, CapEx, working capital to expand, etc), the SPAC model is usually focused on issuing public shares to acquire this capital. Another alternative, once sufficient public interest is at a level to support it, is to utilize stock loan(s) to acquire inexpensive capital and to minimize shareholder dilution. Let me explain – often these SPAC companies issue a large number of shares at a very low price, pennies per share or even partial pennies per share. This sets the stage for the anticipated strong growth in share price. As share price grows with increased interest in the new company and its prospects, more shares can be issued to generate additional capital. Each iteration of issuing shares dilutes the share pool. But often there is enough momentum to absorb this and continue to higher prices. An alternative at a certain point of critical mass in value of shares and number of shares in circulation, is to utilize a stock loan to gain this capital. The company can issue the shares but retain ownership (i.e. held in treasury and not issued to public), and receive a loan of 40-60% of the value at a fixed rate of interest over a term of 3,5,7 or even 10 years. These shares are reportable, they are in the “diluted” share calculation for total shares issued. So although reported, they aren’t in the hands of the public. What is the advantage of doing this? Let’s assume a company has issued a billion shares, and is now trading at $0.175/share, $175 million capitalization. Whatever amount of capital raised from issuing and selling the shares is intended to purchase a separate existing company with operating value, hence the valuation at this level. So at some point additional capital may be needed to help finance the new operating company. Let’s assume they seek $50 million for the new company’s operations, or CapEx, compensate employees, or acquisition – the intended purpose doesn’t really matter. The options are to:  issue 285 million shares to the public (likely requiring the role of investment bank and costs to do so), increasing the share float to 1.285 billion undiluted shares, or  secure a traditional loan from a bank once the assets of the operating company are available as security after the purchase is complete, or  issue 600 million shares for a stock loan but retain the company ownership of these shares. The share pool or float is now 1 billion non-diluted, 1.6 billion fully diluted. A key consideration to this is that the company valuation will not likely change much with the issued 600 million shares, as the company receives $50 million loan proceeds and the shares remain non-diluted category. The current ratio of the company improves dramatically (liquidity). Each situation is unique and management due diligence is required (actual results in market may vary) Let me show a table to illustrate how raising capital through a loan versus just selling the issued shares outright can benefit shareholders and the company as the share price increases As share price goes up, the number of shares that would be required to satisfy the loan goes down. Lets say in 3 years time the share price has reached $1.50/share. The loan and its interest (paid quarterly) and origination fee to maturity is $58 million, so it would take 39 million shares to satisfy that loan. At this point the company may :  repay the loan in cash and all 600 million shares are returned to the treasury account (to be cancelled? Sold all or part for additional capital? Used for new stock loan at a later time? Management/board decisions),  sell sufficient shares to repay the loan, and have the balance returned to Treasury, or  seek a new stock loan, and leave the necessary number of shares for security at the desired new loan level (maybe for $100 million this time, an additional $45-50 million working capital and provide 135 million shares as security?) Let’s compare with the traditional alternative of issuing 285 million shares at $0.175, where the fully diluted share float in that case remains at 1.285 billion. Assume the company decides to repay the stock loan by selling shares at $1.50 to do so, approximately 39 million shares. In the stock loan example the fully diluted share float is then1.039 billion, approximate 245 million or 19% less shares in the float, which likely gets reflected in a higher stock price than if they used the traditional alternative. You can see how shareholders would benefit. Now go through another stock loan iteration at $100 million stock loan this time, and assume the share price goes from $1.50/share to $5.00/share. The benefit to shareholders continue to magnify. The point here is that a company can only issue a share for sale ONCE, but they can lend against it multiple times, over and over. It’s also important to re-iterate, stock loans are non-recourse. There are no other covenants, guarantees, property security, hypothecations with a stock loan. The only security held is the shares transferred to your separate custodian account. There are no penalties to walk away from the loan if it gets triggered by price dropping to a marginable level. If that happens, the company has options to restore margin by a)put in some cash, b) issue more shares or c)to simply walk away. * This brief is for example purposes only. All values may vary with each unique situation. Consult legal advice on the shareholder terms, agreements, share poison pill agreements, etc. Each company charter and terms may vary, and jurisdictional regulations may also vary. Again, this may not be a tool for every occasion. But it’s strongly encouraged that every CFO and VP of finance should have stock loans in their tool box – it’s simple, effective, very quick and easy to manage. Contact our staff at Triticum Finance to work with you to get you a stock loan term sheet today!