Shareholders considering liquidity against listed shares are approached by many providers. Some are principals with capital. Some are intermediaries who will look for capital after the shares have moved. A few are neither. The questions below separate them. They are the questions Silo expects to be asked, and the ones a competent adviser will ask on a client’s behalf.
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On the lender
1. Are you the principal lender, or an intermediary?
Ask whose name will be on the facility agreement and whose capital funds it. A good answer names the lending entity and states plainly that the capital is its own. A poor answer describes “partners”, “funding sources” or “a network” without naming who commits.
2. Who are you, and who can I verify it with?
The registered entity, the principals, their backgrounds, the counsel who acts for the lender, and the executing broker-dealer. A lender that cannot name its own counsel or its broker-dealer is not ready to transact.
On the capital
3. Is the capital prefunded, and can you evidence it before my shares move?
“Prefunded” means the capital is allocated before the operational release of funds, not sourced afterwards. The failure pattern to avoid is shares transferred first, then a search for funding. Silo’s capital is prefunded before operational release mechanics, and funds are released from that capital on the borrower’s signature of the Closing Statement.
4. Are any fees payable before funding?
Origination, legal, “processing” or “due diligence” fees requested before capital is evidenced are the most common warning sign in this market. Ask for every fee, in writing, and when each is payable.
On the structure
5. Is the facility non-recourse? Show me the clause.
Do not accept a summary. Read the provision that limits the lender’s remedy to the pledged collateral, and read the rest of the document for anything that undoes it: personal guarantees, cross-default provisions, top-up obligations, or margin-call mechanics dressed in different words.
6. What are the term, the advance amount, the pricing and the exit — in writing, together?
A single document should set out all of them. Terms quoted piecemeal, or quoted before the lender has looked at the liquidity and volatility of the specific shares, are not terms.
7. What triggers a collateral event, and what happens then?
Price thresholds, volume conditions, corporate actions, suspension or delisting. The consequences should be defined in advance and should be consistent with the non-recourse clause.
8. What happens at maturity?
Repayment, refinancing or return of the shares; whether early repayment is permitted and on what terms. Make sure the maturity mechanics are in the same document as everything else.
On the shares
9. Who holds my shares, under what agreement, and what must you return to me?
A good answer names a licensed broker-dealer or custodian; an account the borrower opens; a control agreement that says what the lender may do with the shares and when; and a written obligation to redeliver the same number of shares after repayment. A poor answer is a custodian the lender will not name, or “we hold them” with no return mechanics in writing. Silo’s structure uses a designated broker-dealer account governed by a Collateral Management Agreement; the operational steps are executed by licensed securities firms and broker-dealers.
10. What may you do with my shares during the term, and where is it written?
A good answer is one clause that states it plainly, and the obligations that do not move whatever the lender does: the return in question 9, dividends made good, no voting unless default, no recourse beyond the collateral. A poor answer is “never”, unwritten; or “never” in one clause and permission in another. The honest answer is rarely “never”. The professional answer is written down, in one place.
11. Who receives dividends and exercises voting rights during the term?
The answer should be specific to the transaction and set out in the documents.
On your own position
12. What disclosures might my pledge trigger, and will you coordinate with my counsel?
Substantial shareholders, directors and insiders are subject to disclosure and other requirements that depend on the exchange and the reader’s position. Those are questions for the reader’s own counsel and company secretary, not for the lender. A serious lender expects that review and works to its timetable.
What Silo will show you
Silo will answer each of these directly. On the structure: facilities are non-recourse, prefunded, and documented through a Facility Agreement, a Collateral Management Agreement, a Promissory Note and a Closing Statement, with operational steps executed through licensed broker-dealers. On the capital: it is Silo’s own, deployed directly, not brokered; no securities selling is required for execution. Before any shares move, Silo’s capital for the facility is deposited into the borrower’s own account at the designated broker-dealer, where the borrower can see it; funds are released on the borrower’s signature of the Closing Statement. On authority: no outside party may approve, bind or commit Silo. On what Silo is not: Silo is not a broker, a placement agent or an investment adviser, and nothing on its website is an offer or a commitment. Every matter is subject to Silo’s own review, diligence, approval, jurisdictional analysis, compliance review and definitive documentation.
Ask the same twelve questions of every provider. The answers will do the comparison for you.
Frequently asked questions
Should I pay an upfront fee to secure terms?
Fees requested before capital is evidenced and before definitive documentation are the most common warning sign in this market. Ask for the complete fee schedule in writing and when each item is payable.
How do I confirm a lender is prefunded?
Ask for evidence before shares are transferred, ask whose name is on the facility agreement, and confirm that the release of funds follows the executed Closing Statement rather than a later fundraising step.
Is a non-recourse facility the same as a margin loan?
No. A margin loan is full-recourse and subject to margin calls and forced sales. See “Margin loan vs non-recourse structured facility”.
Who should review the documents?
The reader’s own counsel. For substantial shareholders, directors and insiders, the company secretary or compliance function should also be consulted on disclosure.
This material is provided for informational purposes only. Nothing herein constitutes investment, legal, tax, securities, accounting or regulatory advice, an offer to lend or provide financing, a solicitation, a recommendation, or a commitment to enter into any transaction. Access may be restricted by jurisdiction or residency. Any potential facility remains subject to Silo’s review, diligence, approval, jurisdictional analysis, compliance review and definitive documentation. Readers should consult their own professional advisers.