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A securities-backed line of credit, or SBLOC, lets a company or its owners borrow against an investment portfolio without selling it. The portfolio stays invested and keeps its market exposure. The lender takes a pledge over the account and extends a revolving facility sized as a percentage of what the securities are worth.
For a business holding treasury investments, or a founder with a large personal portfolio, an SBLOC can be one of the cheapest and fastest sources of liquidity available. It also has a weakness that few other facilities share. The borrowing base moves with the market every day, and in a sharp sell-off the lender can demand cash or collateral within days. This guide covers how SBLOCs work, what they can and cannot fund, and how to structure one so a downturn does not force you to sell at the wrong time.
An SBLOC is a revolving facility secured by a pledged brokerage or custody account. The borrower draws as needed up to the limit and pays interest only on the amount outstanding. Most facilities have no fixed amortisation schedule. Pricing is usually floating, set as a margin over SOFR or the lender's base rate, and the margin often tightens as the facility grows.
The borrower can be the operating company, a holding company that owns the portfolio, or a business owner pledging personal securities to support company borrowing. Each set-up has different documentation, guarantee and tax consequences. Settle which one you are using before you approach lenders.
The typical uses are working capital, bridging receivables, acquisition deposits, capex and short-term cash needs. US lenders generally write SBLOCs as non-purpose loans, which means the proceeds cannot be used to buy or carry margin stock. For leveraged investment exposure you would need a margin account instead.
An SBLOC suits borrowers who need fast, inexpensive liquidity for a defined period and have a clear repayment source. If the need is permanent working capital, an asset-based lending facility secured on receivables and inventory usually holds up better through a market downturn.
An SBLOC is a poor fit for long-dated project or acquisition debt, where a market drop could trigger a call mid-deal. Those needs are better served by term structures through acquisition finance or private credit placement.
Lenders lend against liquid, marketable securities they can value daily and sell quickly. Listed equities, investment-grade bonds, government securities, ETFs and mutual funds are generally eligible. Advance rates depend on how volatile and liquid each holding is. Treasuries and high-grade bonds can support advances at the top of the range. Diversified large-cap equities usually sit around half to two-thirds of market value. Concentrated single-stock positions are discounted heavily or excluded.
Assets that are usually ineligible include penny stocks, restricted or control stock without a special arrangement, non-traded REITs, options, private fund interests and crypto assets. Many lenders set a minimum account value, commonly in the six figures, before they will open a facility.
A related financing option is borrowing against private company shares. This is particularly relevant for startup founders whose wealth is tied up in their businesses rather than publicly traded investments. These arrangements work differently from traditional SBLOCs, with lenders considering the value and liquidity of private shares. For a closer look at how these loans work, see this guide to equity-backed loans for founders, including their risks and alternatives.
Your limit is not fixed. The credit line is recalculated as prices move. A 25% fall in a pledged equity portfolio does not just cut your headroom by 25%. If you are fully drawn, it can put you below the maintenance threshold immediately. Lenders can then require more collateral or a paydown, and many facilities are demand loans that can be called in full.
| Feature | Securities-backed line of credit | Conventional business revolver |
|---|---|---|
| Credit basis | Value and liquidity of the pledged portfolio | Company cash flow, balance sheet and covenants |
| Speed to close | Often days once the account is in place | Weeks to months of underwriting |
| Pricing | Floating, typically a tight margin over SOFR | Floating, with wider margins and commitment fees |
| Covenants | Few financial covenants, collateral maintenance instead | Leverage, coverage and reporting covenants |
| Main risk | Market falls trigger calls or forced sales | Covenant breach if trading weakens |
| Use of proceeds | Broad, but usually cannot buy securities | General corporate purposes as documented |
Maintenance calls arrive when markets are worst. If collateral value falls below the lender's threshold, you will have to post cash or securities or repay part of the balance, often within a few business days. If you cannot, the lender can sell the pledged securities without your consent, which turns a temporary drawdown into a permanent loss. FINRA's investor guidance on SBLOCs sets out this liquidation risk in detail.
Floating rates move against you. Most SBLOCs reprice with the benchmark, so the cost of carrying the line rises when rates rise. Some lenders offer fixed-rate tranches, and these are worth pricing for balances you expect to hold beyond a few months.
Concentration magnifies everything. A portfolio dominated by one stock, often the founder's own company shares, gets a lower advance rate and a much higher chance of a call. It can also run into insider-trading and lock-up restrictions on any forced sale.
Easy access invites drift. Because drawing on an SBLOC takes almost no effort, short-term bridges can quietly become permanent debt. Set a board-approved purpose, a maximum drawn balance and a repayment date when the facility is opened.
Draw well below the maximum. A common discipline is to draw no more than half of the available limit. That leaves room for a meaningful market correction before any call is triggered.
Name the repayment source on day one. SBLOCs work best as bridges to a known event, such as receivable collections, an asset sale, a term loan closing or an equity raise. Interest-only payments with periodic principal reductions keep the balance moving down.
Diversify the pledged account. Moving some equity exposure into high-grade bonds or treasuries raises the advance rate and lowers volatility, and often gives you more usable credit for the same total collateral.
Plan the refinancing. If the need turns out to be longer term, refinance into a structured facility before a market event forces the decision. For trade-led businesses, a structured commodity finance line or credit enhancement on existing bank lines can replace portfolio-backed borrowing entirely.
Borrowing is not a sale. Because the securities are not sold, drawing on an SBLOC does not by itself realise capital gains. That is the main reason owners with low-basis positions use these facilities.
Deductibility follows the use of funds. In most jurisdictions, whether the interest is deductible depends on what the borrowed money is used for, not on what secures it. Interest on funds used in the trade is generally treated as a business expense. Funds used personally, or by a holding company with no trade, are treated differently. Keep clean records that trace every drawdown to its use.
Cross-entity pledges carry their own issues. When an owner pledges personal securities for company debt, the guarantee, any fee for providing it and any intercompany loan terms all need proper documentation. Get advice from a qualified tax professional in each relevant jurisdiction before the facility closes.
Financely helps companies decide whether an SBLOC, an asset-based facility or a structured credit line is the right fit, then takes the request to a network of more than 12,700 lenders. Our USD 500 deal assessment reviews your collateral, cash flow and timeline, and the fee is credited against the arranger fee if you go on to mandate us.
If a market correction would leave your current borrowing plan exposed, we would rather hear about it before you draw than after the call comes in.
Generally no. US lenders usually document SBLOCs as non-purpose loans under Federal Reserve Regulation U, which bars using the proceeds to buy or carry margin stock. Investment leverage is provided through margin accounts, which have their own rules.
Most are floating, priced as a margin over SOFR or the lender's base rate. LIBOR is no longer used for new US dollar facilities. The margin depends on facility size, the quality of the collateral and the overall relationship with the lender, and larger lines usually get tighter pricing.
If collateral drops below the lender's maintenance level, you will be asked to add collateral or repay part of the balance, usually within a short window. If you do not, the lender can sell pledged securities without your approval and may not consult you on which positions it sells.
Yes, through a third-party pledge or a personal guarantee backed by the account. This needs careful documentation, and it puts personal assets at risk for company debt. Get legal and tax advice before you sign.
If the securities already sit with the lending institution, a facility can often be opened within days. Moving assets to a new custodian, pledges from corporate entities and cross-border structures all take longer because of KYC, board approvals and account control agreements.
This article is general information only and is not legal, tax or investment advice. SBLOC terms, eligible collateral, advance rates and use-of-proceeds restrictions vary by lender and jurisdiction. Financely is an advisory and arranging firm, not a lender or broker-dealer, and does not provide securities-based lending directly. Any financing is subject to underwriting, due diligence, credit approval, documentation and conditions precedent, and no outcome or timeline is guaranteed.
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