If you’re an executive or employee at a valuable startup, you could be sitting on millions of theoretical dollars but have trouble with the very untheoretical tasks of paying off a college education or buying a fancy home.
Ask a bank for a personal loan? Not so easy when your net worth is in the form of shares of a private company that a bank can’t easily value.
Now, though, the secondary market SharesPost is creating a program that will route cash from 10 big banks to startup workers, who will use their company equity as collateral for the loan. SharesPost traditionally allows shareholders to sell their stock options on the portal — but that means they could also be losing money if their company keeps rising in value.
A loan allows them to keep the cash and the equity.
“It makes the options more valuable to employees because they’re not going to be locked up before an IPO for 10 years,” said SharesPost CEO Greg Brogger. “Now they’re going to be able to buy a house, buy a car, get a college education.”
The cost though for this type of loan would be steep and could be as high as 12.5 percent: The banks will still levy about a 5 percent fee upfront for each loan, SharesPost said, and then there’s an accruing interest rate of about 3 percentage points more than the so-called prime rate, which is about 4.5 percent as of this week.
SharesPost will serve as a broker, helping the bank determine how much the borrower’s stock is worth and then actually administering the loan.
In the past, banks or individual lenders might have allowed someone to use their startup equity as collateral in special cases — maybe the borrower is a particularly large client, Brogger said. And if people already have other assets — a home, a car or public company stocks — then they can offer those to a bank as collateral.
But as companies stay private for longer and longer, more and more workers at startups are left needing cash sooner.
This article originally appeared on Recode.net.