3SPOKE CAPITAL

Can I borrow money to exercise my private company stock options?

Yes! In many circumstances you can utilize your private company shares that you receive from exercising your options as the collateral for financing both the purchase price and any related taxes that are due on exercise.

Why would I borrow money to exercise my private company stock options today compared to waiting until there is a liquidity event?

There are several potential benefits to exercising your private company stock options and purchasing your shares today versus waiting, these include: Minimizing your tax obligations related to the option exercise and future sale of shares, resulting in the potential for more wealth earned from your shares. Presuming the share value increases over time, by purchasing your shares today, the difference (or spread), between the tax cost basis of your options and the fair market value at the date of your purchase, is taxed as compensation income and will be lower combined with any future appreciati

Are there any tax benefits for exercising my private company stock options now versus waiting?

The taxes due on exercising private company stock options are calculated using the short-term capital gains rate (same as income tax rate) and are based on the difference (or spread) between: The cost basis of your options, which is normally the strike price of your options that is most commonly set at the company’s fair market value (409A value) at the time your options were issued, and The fair market value of your options on the date you exercise them. From the date you exercise your private company stock options to the date you sell the related shares; any gains are subject to long-term ca

What happens if my private company stock options expire?

If your options expire, they become worthless. Expiration of employee stock options typically occurs at the first to occur of: 90 days or less following the end of your employment with the company, or after 10 years from the original grant date. If you have worked as an employee at a company for years with the prospect of a financial windfall, this can be devastating. To prevent this from occurring you need to exercise your options, which means you must purchase the shares at the price they have been granted to you and pay the tax costs of the exercise, the combination of which can be substant