Goldwyn Capital
In the US there are three main ways to get a loan against stock: a margin loan from your broker, a securities-based line of credit (SBLOC) from a bank or brokerage, and a non-recourse stock loan from a specialist lender. With the first two, the shares stay in an account at the firm, which can sell them if the price falls far enough. With the third, the shares move to the lender’s custody account and are the only thing securing the loan.
Which of the three is open to you depends mostly on the stock: where it trades, how many shares change hands each day, whether your shares are restricted, and whether you are an officer or director. If most of what you own is one stock and a broker has already said no, the reason is usually somewhere in that list.
How does a margin loan against stock work?
A margin loan is credit from your broker, secured by the securities in a margin account. Regulation T, the Federal Reserve’s rule on broker credit, sets the required margin on a margin stock at 50% of its market value, which in general lets a broker lend up to half the stock’s value. Some brokers let you use the money for things other than securities, such as real estate.
Once you have borrowed, FINRA Rule 4210 requires you to keep equity (the value of the securities minus what you owe) of at least 25% of their market value. Brokers can set higher “house” requirements, and the SEC says many use 30 to 40%. Fall below the line and you get a margin call. The broker can sell your shares without contacting you first, and if the sale doesn’t cover the loan, you owe the rest.
Not every stock qualifies. Regulation T’s definition of a margin security covers shares listed on a national securities exchange or on Nasdaq. A US company’s stock that trades only over the counter carries a 100% requirement, so it has no loan value in a margin account. Listed small caps can face stricter house rules, which FINRA tells firms to set with volatility, concentration, daily volume and market capitalization in mind. Our post on why your broker won’t lend against your penny stock goes through those rules.
How does a securities-based line of credit work?
An SBLOC is a revolving line of credit secured by the securities in your investment account. Banks and brokerages offer them, many brokerages through a bank affiliate. You make monthly, interest-only payments and can repay some or all of the balance at any time. SBLOCs are non-purpose loans, so you can’t use the money to buy or trade securities, though almost anything else is allowed. They are also demand loans, which means the lender can call the loan at any time.
FINRA says a typical agreement lets you borrow 50 to 95% of the account’s value, depending on what it holds, and that firms often require $100,000 or more in assets. Stocks sit at the low end: a 2015 SEC and FINRA investor alert put typical advance rates for equities at 50 to 65%. Funds may be available within a week of signing.
If the account value falls too far, you get a maintenance call and typically two or three days to add collateral or repay. If you can’t, the firm can sell your securities, often without notice. The lender can also decide a stock is no longer eligible, which shrinks your line, and FINRA warns that a portfolio concentrated in one stock can trigger a call on a single market event. We compare an SBLOC with a non-recourse stock loan separately.
How does a non-recourse stock loan work?
You transfer the shares to the lender’s custody account, where they stay for the life of the loan, and the lender wires you a percentage of their value. When you repay, the shares are returned. Non-recourse means the shares are the only thing securing the loan, with no credit check and no personal guarantee.
The lender Goldwyn Capital works with is an independent US family office that has made non-recourse stock loans since 2006 and funded more than $100MM. It lends $50K to $5MM, depending on the size of the position, at 30 to 50% of the shares’ market value (more for heavily traded stocks). Interest is 5 to 7% a year, simple, fixed for the term and paid quarterly, with any fees listed on the term sheet. The term is 3 years, and you can repay from month 24, with a penalty before that.
Indicative terms come back within one business day, and loans fund in 7 to 10 business days. Goldwyn Capital prepares your file and stays with you through closing; the lender makes the credit decision and funds the loan. Our guide to non-recourse stock loans follows one from request to repayment.
What happens if the stock falls?
Say you hold $1,000,000 of one listed stock and borrow $300,000 against it.
On margin, the call comes when your equity drops below the maintenance requirement. At FINRA’s 25% minimum, that happens once the position is worth less than $400,000; at a 40% house requirement, below $500,000. Brokers can set higher requirements for a volatile or concentrated position and raise them without advance notice, so the trigger can come sooner. If the broker sells for less than $300,000, you owe the difference.
An SBLOC’s trigger is written into the credit agreement. When it’s hit, you typically have two or three days to add collateral or pay down the line, and the lender can sell if you don’t. As a demand loan, it can also be called when the stock hasn’t fallen at all. What you owe if a sale falls short is set by the agreement too, so read that part before you sign.
The non-recourse loan has an equity call at a fall of 25% below the level the loan closed at, here $750,000. You get 5 to 10 business days to top up with cash, stock or other securities. If you choose not to, the loan closes: you keep the $300,000, the lender keeps the shares, and you owe nothing further.
So on these numbers the non-recourse call comes first. The difference is what happens next: you have business days to decide, and if you walk away, your loss stops at the shares you pledged and the interest and fees you have paid. Our comparison of a stock loan and a margin loan when the stock falls goes into more depth.
Margin loan, SBLOC and stock loan side by side
| Margin loan | SBLOC | Non-recourse stock loan | |
|---|---|---|---|
| Who lends | Your broker | A bank or brokerage, often through a bank affiliate | A specialist lender |
| Where the shares sit | Your margin account | Your pledged account at the firm | The lender’s custody account, for the life of the loan |
| How much | Up to 50% of a margin stock’s value, less under house rules | Typically 50 to 95% of the account, less for stocks | 30 to 50% of the shares’ value, $50K to $5MM |
| Interest | Set by the broker, varies between firms | Usually prime or SOFR plus a spread, can change daily | 5 to 7% simple, fixed, paid quarterly |
| If the stock falls | Margin call, shares can be sold without notice | Maintenance call, typically 2 or 3 days | Equity call at a 25% fall, 5 to 10 business days to top up |
| If the collateral falls short | You owe the rest | Set by the agreement | You owe nothing further |
| OTC and microcap stock | US OTC-only stock has no loan value | Up to the lender | Typically accepted at around 100,000 shares a day or more |
| Time to cash | Depends on margin approval at your broker | Often within a week of signing | 7 to 10 business days |
Which option fits your stock?
If you hold a large, heavily traded stock in a US brokerage account and you are not an insider, all three may be open to you. A margin loan or an SBLOC keeps the shares in your own account. The price is the forced-sale risk above, which grows the more of your wealth sits in that one stock.
If your stock trades over the counter, or is a listed small cap or microcap, margin can be limited or unavailable, and an SBLOC depends on whether the lender accepts the stock. The non-recourse lender looks at trading volume: eligible stocks typically trade around 100,000 shares a day or more, and under about 10,000 a day usually doesn’t qualify. The shares must be free trading, eligible for resale under Rule 144, or registered. The lender can take up to 4.99% of a company’s outstanding shares, which caps the loan for a large holder, as how much you can borrow against your stock explains.
If your company went public through a reverse merger, check first whether your shares are restricted, because Rule 144 has a separate paragraph for companies that were once shells. We cover it in borrowing against reverse merger stock. If you hold your shares outside the US, the lender accepts shares on 52+ exchanges worldwide, and shareholders of foreign companies listed in the US qualify.
If you are an officer or director
Some insider trading policies restrict pledging company stock, so read yours before choosing any of the three. The company’s proxy statement also has to show, by footnote or otherwise, how many shares its directors and named executive officers have pledged as security.
For the non-recourse loan, officers and directors need shares registered for resale, and Section 16 filers should expect to report the loan on Form 4. Confirm both with your company’s counsel. Our checklist for officers and directors covers the rest.
What does a loan against stock cost?
Margin interest is set by the broker, and the SEC notes that rates can vary substantially between firms. Your broker has to disclose the rate and how it is computed in writing.
SBLOC rates usually follow the prime rate or SOFR plus a spread, and can change every day, though some firms offer a fixed rate. FINRA also suggests asking how the person recommending the line is paid, since they may earn part of the fees it generates.
The non-recourse rate is fixed at 5 to 7% a year, simple, paid quarterly, plus any fees on the term sheet. On the $300,000 in the example above, 6% comes to $18,000 a year, or $4,500 a quarter.
The risks to weigh before you sign
A margin loan or SBLOC carries the risk of a forced sale at a bad price, on terms the firm can tighten while the loan is open, and on margin you can end up owing more than the shares fetched. Pledged shares are also hard to move: you will likely have to pay off an SBLOC to switch firms, and many brokers won’t transfer securities out of a margin account while a loan is outstanding.
A non-recourse loan takes the shares out of your account. They sit in the lender’s custody account and title can transfer, so you depend on the lender to return them. FINRA’s investor alert on stock-based loan programs warns that the lender “then has total control” over the stock and that “some lenders sell the stock almost immediately.” Check who you are dealing with before any shares move; our guide on how to check a stock loan lender lists what to look at.
You benefit from a rise in the stock when you repay, on the terms written into your term sheet, and repaying before month 24 carries a penalty. Depending on how the loan is structured and where you live, transferring shares to a lender can be a reportable tax event, so talk to a tax adviser before signing. Goldwyn Capital does not give tax advice.
Common questions
Can you borrow against stock without selling it?
Yes. A margin loan or an SBLOC leaves the shares in your account unless a call leads to a sale. A non-recourse stock loan involves no sale on the open market, but the shares move to the lender’s custody account for the life of the loan and title can transfer. More on the ways to get cash from stock without selling.
How much can you borrow against your stock?
Up to 50% of a margin stock’s value at a broker under Regulation T, typically 50 to 95% of an account’s value with an SBLOC (stocks toward the lower end), and 30 to 50% of the shares’ value, from $50K to $5MM, with the non-recourse lender.
Can you borrow against OTC or microcap stock?
Usually not on margin: a US company’s stock that trades only over the counter has no loan value in a margin account. The non-recourse lender looks at trading volume and resale status, so an OTC stock that trades around 100,000 shares a day or more may qualify.
Do you need good credit to borrow against shares?
Not always. FINRA notes that some SBLOC lenders might not run a credit check and may set your limit on your portfolio’s value alone. The non-recourse loan has no credit check and no personal guarantee.
Is a loan against stock taxable?
It depends on the loan and on you. FINRA warns that if a lender sells your securities to meet an SBLOC call, you could owe capital gains tax on the sale. With a non-recourse loan, depending on how it is structured and where you live, transferring shares to a lender can be a reportable tax event, so talk to a tax adviser before signing.
Is a stock loan the same as securities lending?
No. In securities lending, a broker lends shares, often to short sellers, who pay interest on the borrowed stock. In the stock loans described here, you borrow cash and your shares are the collateral.
