We don't do alot of stock secured loans, so I need a little hand-holding on this one...

Scenario:
New loan request for $400,000; business purpose (various business investments/expenses); secured by stock - at 75% LTV. CAR indicates that the loan is subject to: "margin calls should the value decrease in an amount as to not maintaint he proper LTV."

What does that mean exactly?

if the LTV falls below 75% due to drop in value of collateral (you will have to monitor) the margin call will be made - meaning the customer will have to provide additional collateral.

The margin calls could be if value falls below 75% or some other figure...depends on the loan approval.

Okay...thanks...one more question...if the purpose of the loan is to purchase the stock itself (it is not in this case, but for my edification), is there any specific language that has to be included in the Note?

No but you must comply with Reg U, U-1 form, limit on advance rate, etc.

Looking at Reg U.....What is the difference between margin stock and non-margin stock?

Reg U:

Margin stock is any equity security trading on a national securities exchange; any OTC security trading in the Nasdaq Stock Market's National Market; any debt security convertible into a margin stock or carrying a warrant or right to subscribe to or purchase a margin stock; any warrant or right to subscribe to or purchase a margin stock; or any security issued by an investment company registered under section 8 of the Investment Company Act of 1940 (with certain exceptions).

You could also give the customer the option to pledge additional collateral (approved by the bank) OR to pay down the loan to reach the target loan-to-value.

From 221.2 Definitions:

Margin stock means:
(1) Any equity security registered or having unlisted trading privileges on a national securities exchange;
(2) Any OTC security designated as qualified for trading in the National Market System under a designation plan approved by the Securities and Exchange Commission (NMS security);
(3) Any debt security convertible into a margin stock or carrying a warrant or right to subscribe to or purchase a margin stock;
(4) Any warrant or right to subscribe to or purchase a margin stock; or
(5) Any security issued by an investment company registered under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a–8), other than:
(i) A company licensed under the Small Business Investment Company Act of 1958, as amended (15 U.S.C. 661); or
(ii) A company which has at least 95 percent of its assets continuously invested in exempted securities (as defined in 15 U.S.C. 78c(a)(12)); or
(iii) A company which issues face-amount certificates as defined in 15 U.S.C. 80a–2(a)(15), but only with respect of such securities; or
(iv) A company which is considered a money market fund under SEC Rule 2a–7 (17 CFR 270.2a–7).