Am I Responsible for My Spouse's Debt?

Am I Responsible for My Spouse’s Debt?

Marriage is a huge step for most people. It signifies some major life changes — including to your finances. Even as you celebrate, you might have some questions about exactly what marriage means for your financial future. Is their debt now yours? What is your liability when it comes to student loans, credit cards, and other forms of debt? What happens to your credit score?

These issues can get complicated. The short answer is that, among other factors, it depends on where you live. Divorce, death, joint accounts, and court proceedings can all make a huge difference in your liability when it comes to your spouse’s debt. Let’s take a look at the complexities of sharing assets and debt with a spouse.

Credit Card Debt Liability in Common Law States

Most U.S. states are common law states. That simply means the property you acquire belongs to you — even if you’re married. Unless the property is in both people’s names, it belongs to one person. Forty-one states are common law states, so it’s likely this policy applies to you.

When it comes to money and marriage, common law provides that one spouse owns a particular asset unless you both put your names on it. That includes property like houses, automobiles, and even credit cards. If your spouse has a credit card with their name on it, it’s theirs alone. Therefore, the credit card debt liability also falls entirely on their shoulders.

You would need to become a joint account holder in order to own any part of that debt. However, you could also be on the hook for that debt if you co-signed on the account. If your spouse made you an authorized user, though, that still leaves the credit card entirely in their name and not yours, meaning you hold no responsibility for paying any associated debts.

Spouse’s Liability in Community Law States

There are nine states that are community property states rather than common law states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, any assets acquired during a marriage belong to both partners. It doesn’t matter who owns the account or property; the assets belong to both of you. There are, of course, some exceptions to this rule. These include if:

•   A purchase was made solely by one spouse and the property is listed only in their name;

•   The property was gifted to just one spouse;

•   The property was inherited by just one spouse during the marriage;

•   Property was acquired by just one spouse through a will or trust fund;

•   The property was acquired before the marriage began;

•   The property was acquired while the spouses were legally separated and living separately.

In a common law state, your partner’s credit card belongs only to them. But in a community property state, if they get a credit card while you’re married, that debt now belongs to both of you. Both partners are liable, regardless of who might have opened the account or accrued the debt, though there is an exception: If you and your spouse are separated before they begin racking up the debt in question, you may not be held responsible. Each situation is different, however, and the state could hold you responsible for the debt in question should it be proved the debt was incurred for the benefit of the marriage.

It’s good to keep in mind that if you have debts from before the marriage, such as a car loan, those will belong only to you. However, if you get another car loan after getting married, that is now a communal debt that you and your partner share.

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Will My Partner’s Debt Affect My Credit Score?

You can breathe easy here. Even in a community property state, your partner’s debt won’t affect your credit score. If one person has some ups and downs in their credit history, that remains their credit history alone.

However, things change if you open any sort of joint account after getting married. Because that account is partially yours, it will appear in your credit history, so it’s a good idea to make sure you’re feeling confident in your spouse’s financial standing (and responsibility) before opening that joint bank account. You can always keep your financial accounts separate to protect your credit score, if you have concerns. When it comes to things like checking and savings accounts, though, even common law states may end up viewing these as joint property in the case of a divorce, and community property states almost definitely will.

What Happens If We Separate Or Divorce?

While one of the first questions may be ‘how much will a divorce cost me,’ it is very quickly followed by, ‘what happens to our debt?’ Again, it depends. Debt isn’t as simple as dividing things in half. For example, if you have a credit card that is only in your name, that debt remains entirely with you. However, if you have a joint credit card, most states will see that as joint debt if you separate or divorce, meaning you’ll both be responsible for that debt. It doesn’t matter who was making payments or running up bills; the law will see it as a shared burden.

But there’s a lot more than credit card debt to consider during a divorce. If you have a house, you may want to consider selling it off and splitting the money. Trying to untangle a mortgage debt if one of you will be moving out can get dicey. The partner who’s staying in the home may need to buy out the partner who’s leaving, for instance.

All of this becomes even more complicated if you did any investing as a couple during your marriage. Investments come with legal and tax obligations, on top of the financial complexity. If you invested together, you may want to think about selling off those investments and dividing the proceeds during a divorce. However, a lot of investments like that come with tax burdens, so keep that in mind if you have to go this route. Backing out of certain investments early, or even getting paid out for investments, could incur fees and taxes that you and your partner will have to sort out.

It is possible to split those kinds of investments. If it was stock, for example, you could divide up the shares between both partners. This can get messy, though, if one partner is a more aggressive investor than the other.

Of course, the courts might answer this question for you. If you decide to divorce and it is contested, the court could determine which partner owns which debt. In that case, it won’t really matter who opened the account. You will likely have to pay off the debt assigned to you or your ex-partner will be able to sue you. And if your partner goes through bankruptcy, you may have to handle some of that debt if the court orders you to, regardless of whether or not the court discharges any of that debt.

Finally, sometimes a spouse, unfortunately, passes away. Again, if you have joint accounts, you will probably be liable for that debt. If you co-signed anything or your name appears on the paperwork, you may have to handle that debt burden on your own now. Sometimes assets and property can help pay off that kind of debt, but that will depend on the state you live in and what kind of assets you and your partner owned.

The Takeaway

Finances can be complicated at the best of times, and marriage can multiply the complication. If you want to be certain of what your state says about property rights for married couples, the first thing you can do is find out if you’re in a common-law state or a community property state.

After that, you may want to consider how intertwined or separate you want to keep your accounts. If you have concerns, you may want to shy away from things like co-signing loans or setting up joint accounts. Instead, you could sign up for a SoFi checking and savings account before you get married as a means of having assets that belong exclusively to you, even during marriage. Having a bit of money you manage on your own could ease some of your financial fears going into a marriage.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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What is a Stag in the Stock Market?

What Is a Stag in the Stock Market?

A stag is an investor who engages in speculative trading activity. When discussing a stag in stock market terms, you’re using a slang term to talk about day traders who buy and sell securities with a goal of reaping short-term profits.

Stags base their trading strategies around current market movements, relying on technical analysis to help them identify trends, with a focus on initial public offerings (IPOs). That sets them apart from bull and bear speculators, who take a longer view of the market when anticipating price movements.

Stag Definition

What does stag stand for? Stag isn’t an acronym for anything; instead, it’s a slang term used to describe investors who engage in short-term, speculative trading. Stags aim to benefit from short-term price movements by buying low and selling high. They can trade different types of securities and employ different strategies, either bullish or bearish, in executing trades to achieve maximum profit.

Stags and Market Speculation

To understand stag in stock market terms, it’s helpful to look at the difference between investing and speculation. Investing typically means putting money into the market in the hopes of seeing a long-term result, usually capital appreciation. For example, an investor may purchase 100 shares of a value stock in the hope that those shares will have increased in price by the time they’re ready to sell them 10, 20 or 30 years down the road.

Speculation is different. Investors who engage in market speculation, including stags, focus more on what’s happening in the short term and how they can leverage those trends when trading. Stags will generally accept a higher degree of investment risk in order to turn a profit within a fairly short time frame. They use technical analysis, rather than fundamental analysis, to help them make educated guesses about which way a security is most likely to move.

Is a Stag a Day Trader?

Investors who follow a day trading strategy buy and sell securities to capitalize on large or small price movements throughout the day. For example, they may buy 100 shares of XYZ stock in the morning and sell those shares in the afternoon before the trading day closes. Some day traders may buy and sell the same stock minutes or even seconds apart in order to lock in profits from fluctuating prices.

Following that line of thought, a stag could be considered to be a type of day trader. Both stags and day traders typically require a sizable amount of capital in order to execute trades aimed at making a short-term profit. They also have to be relatively savvy when it comes to using online brokerage platforms to buy and sell securities. And, of course, they have to be willing to accept the risk that goes along with engaging in speculative day trading.

The stag meaning in the stock market isn’t limited to retail investors, however. Institutional investors can also fall under the stag umbrella if they engage in speculative trading activity. Institutional day traders can work with different financial institutions such as private equity funds and hedge funds to execute speculative trades on their behalf.

Understanding Stag Trading Strategies

Stag investing revolves around active trading strategies and there are different approaches an investor may take in their efforts to secure short term stock profits. The goal with active trading is to beat the market’s performance whenever possible. Stag investors approach that goal by paying attention to market trends and momentum.

For example, if a security’s price is steadily trending upward a stag investor may speculate as to whether that trend will continue or whether a pullback might happen. If the security’s price drops, the investor may choose to buy shares if they believe that the price will rebound and they can sell those shares at a profit later. They can employ a similar strategy with stocks that are in decline already, if they believe that a price reversal lies ahead.

A stag investor may use a stacking strategy to maximize profits. Stack meaning in stock market terms can refer to different things but when discussing day trading, it means aligning trades to move in the same direction. Assuming the investor’s guess about a security’s price movement proves correct, this strategy could help them to multiply profits.

Stag traders may study stock trading charts in order to identify points of support and points of resistance when tracking price movements. They may be looking for signs that a stock is approaching a breakout, which could suggest a substantially higher price in the future. Stock charts can also be useful for telling a stag investor whether a security’s trading volume is moving bearish or bullish, which can hint at which way prices are likely to move in the near term.

Differences Between Stags, Bulls, and Bears

Stags, bulls, and bears are all different animals, so to speak, when it comes to trading. While stag investors focus primarily on the short term, bull and bear speculators take a longer view of the markets.

Bullish speculators are banking on a rise in stock prices over time. So they may buy securities with the expectation that they can turn around and sell them at a higher price. Bearish speculators, on the other hand, have a more pessimistic outlook in that they expect prices to drop. They may sell off short positions in stocks in anticipation of being able to buy those same securities later at a lower price.

Stag investors can act bullish or bearish in their approach to trading, depending on the overall mood of the market. They may even change from bullish to bearish and back again several times over the course of the same trading day as stock prices rise and fall. Again, that’s not unusual considering the short-term nature of stag trading versus the longer outlook assumed by bull and bear traders.

Do Stags Trade IPO Stocks?

An Initial Public Offering or IPO represents the first time a company makes its shares available for trade on a public exchange. Investing in IPOs can be highly speculative, as IPO valuations don’t always align with a company’s performance once it goes public. Some highly anticipated IPOs can end up being flops while other IPOs that fly under the radar initially end up delivering better than expected results to investors.

Stag investors may buy IPO stocks if they believe there’s an opportunity to capitalize on volatility in price movements during the first day or first few days of trading. The challenge with IPO investing is that there isn’t a lengthy track record of performance for the investor to study and analyze. Since the stock hasn’t traded yet, the same technical analysis rules don’t apply.

That means stag investors who are interested in IPOs must do a certain amount of homework beforehand. Specifically, they have to study the financial statements and documents released as part of the IPO process. They also have to take the temperature of the markets to get a feel for how well the company is likely to do once it goes public before deciding what type of bet they’re going to make on that stock’s debut.

IPO Flipping

Since stags typically aren’t looking for long-term positions, it’s not unusual for them to buy IPO shares then resell them in a short period of time. For example, they may buy shares of an IPO in the morning and sell before the first day of trading ends if pricing volatility works in their favor. It’s also possible for stag traders to buy into an IPO before the company begins trading on an exchange, then sell their holdings once trading opens.

This practice is referred to as IPO flipping and it works similar to house flipping, in that the investor seeks to buy low and sell high quickly. Flipping IPO stocks isn’t an illegal practice as far as the Securities and Exchange Commission is concerned, though it is generally frowned upon.

Brokerage platforms can enforce an IPO flipping policy that outlines what investors are and aren’t allowed to do in order to discourage this practice. For example, SoFi’s flipping policy may impose limits on future IPO investments and/or fees for traders who are identified as flippers.

Stag Trading Strategy Example

Here’s a simple example of how a stag trading strategy might work. Say a new company is set to launch its IPO with an expected valuation of $35 per share. After studying the company’s financials and market expectations for the launch, a stag investor decides to buy 1,000 shares of the stock 10 minutes after trading opens. Within an hour of the company going public, investor demand pushes the stock’s price up to $45 per share.

At this point, the stag trader could sell and collect a $10 profit per share, less any commission fees their brokerage charges. But they have a hunch the price may climb even higher before the trading day is done so they hold onto their shares. By 3 pm the stock’s price has climbed to $52 per share, at which point the trader decides to sell.

Of course, this example could have gone the other way. It’s not uncommon for an IPO to open trading at a higher price point and drop throughout the day. If the investor’s hunch had proven wrong and the price dropped to $25 per share, they would have had to decide whether to cut their losses or carry over their position for another trading day to see if the price might turn around.

The Takeaway

IPO investing can be attractive if you’re hoping to get in on the ground floor of an up-and-coming company. You may also be interested in IPO flipping if you’re an active day trader.

SoFi makes it as easy as possible to get started with Initial Public Offerings. Although there may be limits on IPO flipping, you can still use the platform to invest in IPOs before they’re available for trade on a public exchange. If you’re ready to diversify with IPOs, learn more about the SoFi Invest® investment app today.

Photo credit: iStock/AleksandarGeorgiev


SoFi Invest®
SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

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What Are Bitcoin Options & How Do They Work?

What Are Bitcoin Options & How Do They Work?

Options contracts are agreements between two parties. An option gives the holder the right, but not always the obligation, to buy or sell an asset at a certain price on or before a specific date. Some exchanges also offer what are called binary options, where traders place bets on which way the price of an asset will move.

Bitcoin options are a popular way for both retail and institutional investors to profit from the price movements of Bitcoin. Here are the basics of how Bitcoin options trading works.

Bitcoin Options Defined

A Bitcoin option is a derivative — a financial instrument that derives its value from an underlying asset. A Bitcoin options contract is an agreement to be able to buy Bitcoin at a certain price on a certain date.

In the early days of Bitcoin, the only way to acquire the asset was either to mine coins yourself or buy them from someone who did. Over time, reputable, trusted exchanges popped up, and the market cap and daily trading volume of Bitcoin began to grow rapidly, along with its price. This began to attract the attention of institutional investors like banks and hedge funds.

But because Bitcoin existed in a legal grey area devoid of any real regulations, institutions couldn’t touch it. They couldn’t risk getting in trouble with regulatory authorities like the SEC, CFTC, or FINRA. They wanted a way to get into the market in a more indirect, regulated way.

So they pushed for the creation of crypto derivatives like Bitcoin options.

Explaining Bitcoin Options Trading

For the most part, Bitcoin options trading works like trading options for any other asset. There are some key differences, including the following:

•   Most Bitcoin options are cash-settled, meaning there’s no delivery of the underlying asset

•   Bitcoin options tend to be very volatile, so they have high implied volatility (IV)

•   Due to the high IV, these contracts tend to come with high premiums, making them expensive to trade

How Are Bitcoin Options Traded?

The simplest types of options on Bitcoin are calls and puts. A call gives the holder the right to buy Bitcoin at a certain price on a specified date. A put gives the holder the right to sell Bitcoin at a certain price on a specified date. There are also more complex strategies for trading options that won’t be covered here.

While trading Bitcoin options might sound simple, the actual process can get confusing. Most exchanges make it easy enough to pick a strike price, expiration date, and call or put. So, almost anyone can buy a contract.

But understanding how different variables affect the price of the option can be a lot more complicated. It’s not uncommon for new options traders to lose money. Losses can be much larger than anticipated, too.

Put options in particular come with unlimited risk. There’s no limit to how high the price of Bitcoin, or any other asset, can potentially go. And the further the price rises, the more money a put option holder will lose.

What Drives Bitcoin Options Prices?

There are a few main factors that make up the price of an option. It’s crucial for options traders to be familiar with these terms and to research how they apply to the specific options contracts they want to trade.

Expiry Date

This is the date the option will be exercised. For calls, the option holder can buy the underlying asset on this date. For puts, they can sell.

Strike Price

This is the price of the underlying asset that the option holder can buy or sell at upon expiration.

Time Decay

As the expiry date approaches, time decay settles in. This erodes the premium of the contract, decreasing its value over time. Because there is less time for prices to move, and therefore less opportunity to profit as expiration draws near, no one is willing to pay very much for the contract any longer. Time decay is not a linear process; it gets increasingly faster the closer it gets to the expiration date.

Implied Volatility

The more volatile the underlying asset, the more uncertain the outcome of a contract will be. This makes the contracts more expensive. Sometimes, implied volatility can collapse even as the price of an asset moves in the direction a trader wants it to — resulting in “IV crush”. The value of a contract can then decline quickly. This is just one way that options traders can get crushed even when they make the right bet.

Premium

This is the price that someone pays to buy the option. How the premium is calculated depends on the other factors.

Of course, anyone trading options would also be wise to understand the underlying asset of the contract. In this case, they might want to learn what Bitcoin is beforehand.

When Do Bitcoin Options Expire?

Bitcoin options are European-style contracts, meaning they can only be exercised at expiration. In contrast, American style options can be exercised at any time.

Like other options, Bitcoin options expire on their expiration or expiry date. This time can also be referred to as the option “reaching maturity”.

In general, options with an expiry date further into the future come with higher premium prices. This is due to the added uncertainty. With more time until maturity, the writer (seller) of the option is taking on a greater risk, because there’s more time for the underlying asset to make a big move one way or another.

As a result, the options writer will demand a higher premium. There is also more time for buyers of the option to make a profit, so they are willing to pay more for the contract.

How Expensive Are Bitcoin Options?

Because of their implied volatility, Bitcoin options tend to be among the most expensive options contracts on the market. The higher the IV, the higher the premium, or price of the option.

Bitcoin itself has a reputation for being among the most volatile assets in the world. The only thing more volatile might be altcoins, other cryptocurrencies with smaller market caps. Because of that extreme volatility, Bitcoin options tend to be much more expensive than options that have more traditional underlying assets like bonds or equities.

It’s hard enough to answer the question “how is Bitcoin valued.” Determining how Bitcoin options are valued can be even more difficult.

Bitcoin Options and CME

The Chicago Mercantile Exchange (CME) Group is a leader in trading options and futures. About 50 years ago, CME Group was responsible for creating the first futures contracts that had financial instruments as the underlying assets rather than commodities.

It’s perhaps fitting that the CME Group also launched the first regulated Bitcoin futures exchange in the USA in the fourth quarter of 2017.

The Takeaway

Bitcoin options trading can be complex, confusing, and risky. As with any options trading, there are multiple factors that can lead to unexpected changes in the value of a contract. Even if the price moves in a direction that is favorable to the contract, traders can still lose money due to changes in time decay and implied volatility.


Photo credit: iStock/Eoneren

SoFi Invest®
SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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What Is an Emerging Growth Company?

What Is an Emerging Growth Company?

“Emerging Growth Companies”(EGCs) are businesses that meet certain government criteria that allow them to follow different rules when they file with the Securities Exchange Commission (SEC) to go public. This status gives some smaller companies the ability to compete with larger companies for the capital that’s available through an initial public offering (IPO).

The government began recognizing “emerging growth companies” in 2012 as part of the Jumpstart Our Business Startups (JOBS) Act. Enterprises that qualify can keep their “emerging growth company” status for up to five years.

Emerging Growth Company Definition

Emerging growth companies are defined by Section 2(a)(19) of the Securities Act . Companies that qualify under these rules may choose to follow simplified disclosure requirements.

To go through an emerging growth IPO, a business must meet the following criteria:

•   Their total gross revenue — all of the money generated by the business — must be less than $1.07 billion in its most recently completed fiscal year.

•   The business cannot have sold common equity securities, shares of a class of stocks of the company, under a registration statement.

Emerging Growth Company Status Benefit

When a company goes public, it must follow strict guidelines issued by the SEC. Meeting these requirements can be costly, time consuming, and complicated. Once a business qualifies as an emerging growth company, it may choose to follow a scaled-down set of guidelines created for smaller companies.

These include:

•   Less detailed narrative disclosures from management.

•   Two years (rather than three) of audited financial statements.

•   No third-party auditor attestation for financial reporting.

•   Test-the-waters communications with certain investors.

How Long Does Emerging Growth Company Status Last?

Once an emerging growth company goes public and starts offering stocks on the open market, it can maintain its status for five years unless one of the following events occurs:

•   Its gross revenues exceed $1.07 billion.

•   It issues $1 billion or more in non-convertible debt — unsecured bonds that cannot be converted into company stock — over three years.

•   It becomes a large, accelerated filer, which according to SEC rules has at least $700 million in publicly issued stocks held by non-affiliates.

JOBS Act Explained

The disclosure and regulatory requirements for emerging growth companies began as part of the Jumpstart Our Business Startups (JOBS) Act to counteract a belief that smaller companies were being discouraged from entering the public market, largely due to the cost of compliance with government regulations. Proponents of the act believed that allowing smaller businesses the opportunity to go public would create more jobs and lead to broader economic growth.

The act loosened SEC regulations for smaller companies in an effort to make it easier for companies to raise capital. It also made it easier for retail investors to invest in startups, and for startups to access crowdfunding.

Some opponents to the bill worried that decreased SEC regulation would expose investors to undue risk.

Pros and Cons of the JOBS Act

There are both benefits and drawbacks to the JOBS Act and ability for some startups to apply for Emerging Growth Company status.

Pros of the JOBS Act

The main advantage of the JOBS Act is that it gives small companies more access to raising money to invest in research and development, growth, and hiring. Other benefits include an opportunity for retail investors to purchase equity in startups through their brokerage account and enhanced liquidity for founders and existing shareholders.

Cons of the JOBS Act

The lack of regulation is a potential disadvantage to the JOBS Act. Less government oversight could mean a greater risk for fraud.

Summary of Pros and Cons of the JOBS Act

Here’s a look at the pros and cons of the JOBS Act at a glance:

Pros

Cons

Less regulation, which lowers the barrier to entry for companies looking to raise capital. Decreased regulation means less government oversight.
Easier to reach out to potential investors through test-the-waters communications and advertising. Less government oversight may mean a greater risk for fraud.
Increased communication, such as advertising online, makes it easier to find investors across geographical boundaries. A lower bar for entry into the public markets could mean a higher failure rate.
Easier for retail investors to invest in startups.

Going Public Process

The JOBS Act made it easier for smaller companies to go public and offer shares of stocks on the open market. Companies commonly go public by making an IPO. Prior to that, they are private.

Before going public, companies can not sell shares to the general public, and they don’t have to disclose financial information to the public. Once a company decides to offer shares on open exchanges, it must follow a lengthy IPO process.

The IPO Process

First, the company must choose an IPO underwriter, often an investment bank, who will help determine the IPO price and facilitate the sale between the company issuing stock for the first time and investors.

The underwriting team will also begin the process of registering the company with the SEC by filing the S-1 Registration Statement. The SEC then reviews the documents submitted by the underwriter. Meanwhile the underwriting team contacts institutional investors to gauge their interest in the IPO.

When the SEC has approved the IPO, it’s time to choose the initial share price based on company valuations, market conditions, how much capital the company hopes to raise, and general interest.

With a share price set, the IPO is ready to launch on the open market and an IPO date is announced.

After launch, the underwriter has a 25-day period to stabilize share prices by executing trades that influence price. Once that period ends, the market will determine the share price going forward. Investors look at things like earnings reports to determine whether or not the stock is a good value.

The Takeaway

An IPO offers companies some potentially huge advantages, including raising money to help a company grow, increasing liquidity, providing an exit strategy for early investors who can sell shares, and a big boost in publicity. Emerging growth companies get access to those advantages with a slightly easier IPO process.

Investors interested in IPOs can buy shares inside a brokerage account or retirement accounts, such as an IRA. One way to get started is via the SoFi Invest® online brokerage account, which allows you to build a portfolio that includes IPOs as well as stocks and exchange-traded funds.

FAQ

What qualifies as an emerging growth company?

Emerging growth companies must have a total gross revenue of less than $1.07 billion in the most recently completed fiscal year, and they cannot have sold common equity securities under a previous registration statement.

How do you lose emerging growth company status?

Companies retain their emerging growth company status for five years or until their gross revenue exceeds $1.07 billion, the company issues $1 billion or more in non-convertible debt, or it becomes what is known as an accelerated filer.

Is an emerging growth company a smaller reporting company?

Smaller reporting companies are defined differently than emerging growth companies. They must have a public float of $250 million or less. Or if they have revenue of less than $100 million they may have no public float or a public float of less than $700 million. A public float the number of shares held by non-affiliates multiplied by the market price.

Photo credit: iStock/turk_stock_photographer


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1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

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Personal Loan vs Personal Line of Credit

There are two main differences between a personal loan and a personal line of credit: how the loan funds are disbursed to the borrower and how the credit is repaid.

There are also some similarities. Funds from each can be used for a variety of expenses, with few exceptions. For both a personal loan and line of credit, lenders will run a credit check during the application process.

Each has its strengths, depending on what you need the money for, so knowing a few basics about the difference between personal loans vs. personal lines of credit will help you find the best fit for your situation.

What Is a Personal Line of Credit and How Does It Work?

A personal line of credit (LOC) is a type of revolving credit similar to a credit card. But funds are typically accessed by writing checks provided by the lender or requesting a funds transfer to your checking account instead of by using a card.

An LOC is open ended, so the borrower can withdraw the funds repeatedly, up to the credit limit. Any funds that are withdrawn are subject to repayment with interest. When they are repaid, they can be accessed again. There may be a limit on the number of years the line of credit is available.

Some lenders may charge fees associated with an LOC. There may be a maintenance fee for inactive accounts. There may also be ongoing fees, monthly or annual, even if the LOC is being used. Some other fees may include application fees, check processing fees, late fees, or others. It’s important to be aware of any potential fees before you sign an LOC agreement.

Personal lines of credit are usually unsecured, although you may be able to put up collateral to get a lower interest rate. A home equity line of credit, or HELOC, is an example of a secured line of credit.

Typically, a personal LOC will be offered by a bank or credit union, and you might have to have another account with the lending institution to be considered for an LOC.

If your LOC is unsecured, the interest rate will probably be variable, which means it could go up or down during the loan’s term, and your payments could vary. But you’ll only be charged interest on the amount you withdraw. If you’re not using any LOC funds, you won’t be charged interest.

If you expect to have ongoing expenses or if you have a big expense (like a wedding or home renovation) but don’t know what your final budget will be, this type of borrowing might be a useful financial tool.

A personal LOC also may be the right fit if you need some flexibility with your borrowing. For example, self-employed workers who know they’ll be paid by a client, but aren’t sure exactly when, can tap into their line of credit to pay expenses while they wait. They can pay that money back when they receive payment from the client, and they won’t have to use high-interest credit cards or borrow from other savings to make ends meet.

Of course, there are downsides to that easy-to-access money. Since unsecured lines of credit are considered by lenders to be riskier than their secured counterparts, it can be more difficult to qualify at a favorable interest rate.

And once you have access, it may be tempting to use the funds for purposes other than originally planned. Keeping in mind the intended purpose for the funds may help you stick to it and not use the funds for other purchases.

Pros and Cons of Personal Lines of Credit

Having funds that can be accessed as needed can be helpful. But there are also some drawbacks to consider.

Pros of Personal Lines of Credit

•   Easy access to funds.

•   Open ended.

•   Minimal limits on use of funds.

•   Can be useful for ongoing expenses.

Cons of Personal Lines of Credit

•   May have a higher interest rate than other forms of credit.

•   Typically are unsecured, so may be more difficult to qualify for than other forms of credit.

•   Interest rate may be variable, presenting a budgeting challenge.

•   Ease of access can be tempting to use for unintended purposes.

What Is a Personal Loan and How Does It Work?

A personal loan is a fixed amount of money disbursed to the borrower in a lump sum. If the loan has a fixed interest rate, as is typical for personal loans, the payments are in fixed installments for the term of the loan. If the loan has a variable interest rate, the monthly payments may fluctuate as the interest rate changes in accordance with market rates.

Because personal loans typically have lower interest rates than credit cards, they’re often used to pay off other debts such as home and car repairs or medical bills, or to consolidate other higher-interest debts such as credit card balances into one manageable — and potentially lower — monthly payment.

A personal loan can be a useful tool for debt consolidation. If you can qualify for a personal loan that has a lower interest rate than your other outstanding debts, you may be able to save money in the long run by consolidating those debts. In order for this financial strategy to work, it’s important to stop using the old sources of credit to avoid going deeper into debt.

A personal loan also could be a suitable choice for paying for a wedding or home renovation. But it’s important that you feel confident about being able to repay the loan on time and in full. If you don’t responsibly manage a personal loan — or any kind of debt, for that matter — your credit can be adversely affected.

You can apply for a secured or unsecured personal loan. A secured loan, which is backed by collateral, is typically considered less of a risk by lenders than an unsecured loan is. Collateral is an asset the borrower owns — a vehicle, real estate, savings account, or other item of value. If the borrower fails to repay a secured loan, the lender has the right to take possession of the asset that was put up as collateral.

An applicant’s overall creditworthiness will be considered during the approval process. Generally, an applicant with a higher credit score will qualify for a lower interest rate, and vice versa.

Some lenders charge personal loan fees such as origination fees or prepayment penalty fees. Before signing a loan agreement, it’s important to be aware of any fees you may be charged.

Pros and Cons of Personal Loans

When you need a set amount of money for an expense, a personal loan can be a good choice. Along with the benefits of using this financial tool also come a few drawbacks to consider.

Pros of Personal Loans

•   May be a good choice for large, upfront expenses.

•   Typically have fixed interest rates.

•   Steady payments may be easier to budget for.

•   May have a lower interest rate than credit cards.

Cons of Personal Loans

•   Unsecured personal loans may have higher interest rates than other forms of secured credit.

•   May need a higher credit score to qualify for lower interest rates.

•   If not used responsibly, it can add to a person’s debt load instead of alleviating it.

•   May have fees.

Major Differences Between Personal Lines of Credit and Personal Loans

When you’re looking for the right source of funding for your financial needs, it can help to compare different types. Here are some specifics to consider when looking at personal LOCs and personal loans.

Personal Line of Credit

Personal Loan

Typically has a fixed interest rate More likely to have a variable interest rate
Fixed interest rate may make it easier to budget payments Variable interest rate may present a budgeting challenge
Fixed, lump sum Open-ended credit, up to approved limit
Interest is charged during entire loan term Interest is only charged on withdrawn amounts
Revolving debt Installment debt

Considering the Type of Debt

When you’re thinking about applying for a personal LOC or a personal loan, it’s important to consider the effect borrowing money can have on your credit score. If you borrow money without a repayment plan in place, you could run into trouble no matter which borrowing option you go for. But each is looked at differently by the credit bureaus.

A personal LOC is revolving debt, which means it will factor into your credit utilization ratio — how much you owe compared to the amount of credit that’s available to you.

For a FICO® Score or a score by VantageScore, keeping your total credit utilization rate below 30% is recommended.

•   Using a large percentage of your available credit can have a negative effect on your credit score. And lenders may see you as a high-risk applicant because they may assume you’re close to maxing out your credit cards.

•   Using a small percentage of your available credit can work in your favor. If your credit utilization ratio is low (under 10%), it signifies to potential lenders that other lenders have determined you to be a good risk, but you don’t need to use the credit that’s been extended to you.

•   Having a low credit utilization rate by using just a little of your available credit could actually have a more positive effect on your credit score than not using any of it at all. Lenders generally look for signifiers of a healthy relationship with credit.

A personal loan is installment debt and isn’t considered in your credit utilization ratio. In fact, if you pay off your revolving debt with a personal loan, it potentially can lower your credit utilization ratio and have a positive effect on your credit score. A personal loan also can add some variety to your credit mix — something else that’s calculated into your credit score.

Personal LOC or Personal Loan: Which Is Right for You?

Before you decide to take out a line of credit or a personal loan, it’s wise to compare lenders. Look at the annual percentage rate and whether it’s fixed or variable. You can also take into account any fees you might have to pay, including origination fees, annual fees, access fees, prepayment penalties, and late payment fees.

Estimating the total cost of the loan until it’s paid in full, including the principal loan amount, interest owed, and any fees or penalties you could potentially be charged, will help you figure out how much the loan will actually cost you.

The Takeaway

Deciding when and how to borrow money can be a tough decision. But once you check out the lending options available, find your fit, and are ready to go, you’ll want the application and approval process to be as painless as possible. Applying for a SoFi Personal Loan online is easy and you can check your rate in just one minute.

SoFi Personal Loans have no fees required and no hidden costs. Interest rates are fixed and there are a variety of loan terms to fit different budgets.

Check your rate on a SoFi Personal Loan


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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