How to Borrow Against Your Stocks: A Complete Guide to Securities-Backed Loans

Yes, you can borrow against stocks. Today, many brokerages, banks, and wealth managers let you borrow against your stock portfolio using those securities as collateral. But knowing whether you should is another matter entirely. This guide walks you through when borrowing against stocks makes sense, how it actually works, what it costs, and how to protect yourself if you go down this route.

The Two Main Ways to Borrow Against Stocks

When you want to borrow against stocks, you’ll encounter two main products: margin loans and SBLOCs (securities-backed lines of credit).

Margin loans are the simpler option. Your brokerage lets you borrow directly against eligible securities in your account—typically to buy more stocks or handle short-term trading needs. The catch? If your account value drops, the brokerage can force you to deposit more cash or sell holdings to maintain the minimum equity ratio they require. Margin loans are best suited for active traders, not for general liquidity needs.

SBLOCs (or portfolio lines of credit) work more like a credit card backed by your investment portfolio. You set up a revolving credit line, borrow what you need, repay when you’re ready, and redraw as needed. Unlike margin loans, SBLOCs are typically restricted to non-securities purposes—paying for a home down payment, covering taxes, funding education, or running a business. Lenders like SBLOCs because the collateral is liquid and the borrower has less incentive to trade recklessly. Most wealth management firms and private banks offer SBLOCs for clients with substantial diversified portfolios.

Private bank term loans represent a third option. Some banks provide fixed-term or amortizing loans secured by your securities. These often come with more personalized terms and may be available even if you don’t meet the minimums for a standard SBLOC.

The loan product you choose depends entirely on your purpose. Margin for trading. SBLOC for everything else.

How Securities-Backed Borrowing Actually Works

The mechanics are straightforward but important to understand.

Collateral valuation and eligibility: Your lender marks your pledged portfolio to market daily (or weekly, depending on the agreement). Not all securities qualify. Blue-chip stocks, diversified ETFs, and investment-grade bonds usually do. Small illiquid names, penny stocks, and speculative options rarely do. The lender assigns an LTV (loan-to-value) percentage to each eligible asset—for example, a broad S&P 500 ETF might get 60% LTV, while a concentrated tech position might get only 30%.

Calculating your borrowing capacity: Your maximum credit line is the sum of (each security’s market value × its assigned LTV). If you own $200,000 in eligible securities and the average LTV is 50%, your credit line is $100,000. Simple math, but the LTV cushion matters enormously when markets move.

Interest rates: Most facilities charge variable rates tied to the prime rate or another benchmark, plus a spread. Rates can move quickly if the Fed raises rates. Established clients with large portfolios may negotiate better pricing. A few private banks offer fixed-rate options, but they’re less common.

Draw and repayment: With an SBLOC, you draw what you need, repay when you choose, and redraw without reapplying. Many SBLOCs allow interest-only payments while you’re borrowing. Margin loans show up as a debit in your brokerage account and accrue interest daily.

The margin call and forced liquidation risk: This is the critical risk. If your pledged portfolio falls in value—whether due to a market correction or concentration in a single holding—your equity cushion shrinks. If it falls below the lender’s maintenance requirement, the lender can issue a margin call. If you can’t deposit cash quickly, the lender has the contractual right to liquidate your securities at market prices to repay the debt. Forced liquidations often happen at the worst possible time and can trigger unexpected capital gains taxes.

Typical Terms: What You’ll Actually See

Loan-to-value ratios: Margin loans typically allow 50% LTV on many equities (borrow up to half the value). SBLOCs commonly range from 50–70%, depending on asset quality and concentration. U.S. Treasury bonds and diversified ETFs may qualify for higher LTVs; volatile small-caps get lower ones or none at all.

Minimum portfolio size: Most SBLOCs require a minimum account balance of $100,000 to $500,000. Private bank solutions may require $1 million or more. Brokerages vary widely, so shop around.

Interest rates and fees: Expect variable rates (often prime + 1–3%, depending on your relationship and the market). Some facilities charge setup fees, annual facility fees, or minimum interest charges. Read the fee schedule before signing.

Relationship effects: If you’ve been with your brokerage or bank for years, have substantial assets under management, or are a premium customer, you may negotiate lower rates or higher LTVs. New customers typically get standard terms.

Real-World Uses: When (and When Not) to Borrow Against Your Portfolio

Good reasons to borrow against stocks:

• Bridge financing for a home purchase: You need the down payment now but want to wait before selling appreciating securities. An SBLOC lets you bridge the timing gap while preserving your investments and deferring capital gains tax.
• Large one-time expenses: A major tax bill, tuition payment, or business need arises. Borrowing via SBLOC is often faster and cheaper than selling investments or taking an unsecured loan.
• Opportunistic cash needs in a rising market: You want to make a strategic investment or business move without disrupting your long-term portfolio. If rates and market conditions are favorable, borrowing can make sense.
• Estate liquidity for heirs: A portfolio is passing to the next generation but heirs need immediate cash. A short-term SBLOC can cover estate taxes or immediate needs while the portfolio is being transferred or settled.

Poor reasons to borrow against stocks:

• Ongoing consumer spending: Don’t borrow against your portfolio to fund lifestyle inflation. It’s expensive and erodes your long-term wealth.
• Buying more stocks with margin: Unless you’re an active trader with deep conviction and strict risk limits, margin for stock purchases amplifies both gains and losses. Most retail investors get hurt.
• Betting on a single holding: If your portfolio is 60% concentrated in one tech stock, borrowing against it is dangerous. A sector rotation or company-specific problem can wipe out your equity cushion quickly.
• In a bear market or high-volatility environment: When equity valuations are uncertain and volatility is high, margin calls are more likely. Wait for calmer conditions if possible.

Understanding the Risks Before You Borrow

Borrowing against stocks isn’t risk-free. The key risks are:

Market decline and forced liquidation: A 20–30% correction in your portfolio value can quickly exhaust your LTV cushion. If you don’t have reserve cash, you’ll face a margin call. The lender can force-sell holdings at terrible prices in a falling market—exactly when you least want to realize losses.

Amplified losses: If you borrow $100,000 at 5% and the investments fall 20%, you’ve lost $20,000 on the collateral while paying $5,000 in annual interest. Your net loss exceeds what an unlevered portfolio would have suffered.

Rising interest rates: If your SBLOC has a variable rate and the Fed raises rates, your borrowing cost increases. If you were already on a tight cash flow, higher interest can force liquidations.

Tax complications: If a forced liquidation or margin call forces you to sell appreciated securities, you’ll owe capital gains tax immediately. Depending on your holding period and tax bracket, this can be substantial. Also, interest deductibility depends on how you use the proceeds—consult a tax professional for your situation.

Retirement account restrictions: IRAs, 401(k)s, and other tax-advantaged accounts typically prohibit pledging assets as loan collateral. If your primary portfolio is in a retirement account, you can’t borrow against it.

Complexity and monitoring: You need to actively monitor your LTV ratio, especially in volatile markets. A casual approach can lead to surprises.

Your Step-by-Step Action Plan

If you’ve decided to borrow against stocks, here’s how to proceed:

Step 1: Assess your portfolio: List your holdings, market values, sector concentrations, and volatility. Identify which securities are likely to be eligible for the loan facility. If you have significant concentration in a single stock or sector, recognize the risk.

Step 2: Contact your provider: Call your broker, bank, or wealth manager and ask about margin loans or SBLOCs. Request a term sheet that shows the eligible securities, LTV assignments, interest rates, fees, and minimum balances. If you custody assets in a Web3 wallet, you may need to work with a specialized lender or bridge provider; research options that integrate with your custody setup.

Step 3: Model scenarios: Use the LTV numbers to calculate your credit line. Then, simulate a 15%, 25%, and 30% decline in your portfolio value. See at what portfolio value you’d trigger a margin call. This modeling step is critical—many borrowers are shocked when their math is wrong.

Step 4: Understand the agreement: Read the credit agreement carefully. Check:

• Permitted uses of the proceeds (especially important for SBLOCs—some explicitly exclude securities purchases).
• Interest rate formula and how often it resets.
• Maintenance margin or collateral coverage ratio requirements.
• Conditions under which the lender can force a liquidation.
• Fee schedule and any minimum interest charges.
• Default remedies and your rights to dispute a forced sale.

Step 5: Set borrowing limits: Don’t use the full LTV the lender allows. If your SBLOC offers 60% LTV, consider using only 30–40%. The buffer protects you if markets dip or rates spike.

Step 6: Maintain a cash reserve: Keep liquid cash outside the pledged portfolio—at least enough to cover one or two margin calls or interest payments. This reserve is your insurance policy.

Step 7: Set up monitoring: Weekly or monthly, review your LTV ratio and outstanding balance. Many online platforms let you track this in real time. Set an alert if your collateral value falls below a certain threshold.

Frequently Asked Questions

Q: Will I lose my stocks if I default? A: Not immediately, but yes, eventually. You retain ownership as long as you pay interest and maintain the collateral coverage. If you default or a margin call goes uncured, the lender will force-liquidate your positions to cover the debt.

Q: Can I borrow against my IRA or 401(k)? A: No. Retirement accounts almost always prohibit third-party loans secured by plan assets. If you’re trying to access retirement savings, other strategies (like a 401(k) loan if your plan allows) may be available, but borrowing against the account itself is not.

Q: Can I use the loan proceeds to buy more stocks? A: Margin loans are designed for this and are governed by margin rules. SBLOCs, however, are contractually restricted from purchasing securities—this is a regulatory safeguard called “non-purpose borrowing.” Violating the restriction can trigger default.

Q: What happens if the market crashes 40% overnight? A: Your LTV ratio collapses. The lender will issue a margin call. You’ll have a few days to deposit cash or sell assets to restore the required equity ratio. If you can’t, the lender will force-liquidate holdings. This is the single biggest risk of borrowing against stocks—it crystallizes losses at the worst possible time.

Q: Is the interest deductible on my taxes? A: Maybe. U.S. tax law allows interest deduction only on loans used to purchase or carry taxable investments. If you use an SBLOC to pay for a house, fund a business, or cover personal expenses, the interest is generally not deductible. Jurisdiction and use-of-proceeds rules vary; consult your tax advisor.

Q: How does this compare to a home equity line of credit (HELOC)? A: A HELOC is secured by real estate and typically offers lower rates (real estate is less volatile than stocks). But a HELOC is slower to set up and ties up your home—foreclosure is a real risk. Securities-backed borrowing is faster and leaves your home untouched, but portfolio volatility makes forced liquidation a live risk. Pick based on collateral you’re comfortable pledging and the speed you need.

Common Mistakes to Avoid

Mistake 1: Using too much of the available LTV: Lenders offer maximum LTVs because they’re profitable—not because they’re safe for you. Use half or less of what’s available to maintain a safety cushion.

Mistake 2: Ignoring concentration risk: If 70% of your portfolio is in one tech stock, borrowing against it is extremely risky. Diversify your pledged collateral or borrow less.

Mistake 3: Borrowing for lifestyle instead of one-time needs: A SBLOC is expensive for ongoing consumption. Use it for specific, time-limited expenses (down payment, taxes, business cash flow). Then pay it off.

Mistake 4: Failing to model downside scenarios: The math during a bull market is seductive. Model what happens in a 30% correction or if the Fed raises rates three times. You’ll sleep better knowing your buffer.

Mistake 5: Not coordinating with your tax and financial advisors: Securities-backed borrowing has tax implications and interacts with your overall financial plan. Get professional input before committing.

Alternatives to Borrowing Against Your Portfolio

If borrowing against stocks doesn’t feel right, consider:

• Selling securities: Accept the capital gains tax and move on. If your portfolio is overvalued or you have losses to offset gains, this can be the cleanest option.
• Unsecured personal or business loans: No portfolio risk, but higher interest rates and stricter credit checks.
• Home equity line of credit (HELOC): Lower rates than securities-backed credit, but slower and your home is on the line.
• Structured loans using alternative collateral: Private art loans, insurance policy loans, or other specialty lending. Rare and complex, but sometimes available.
• Saving or budgeting: The old-fashioned approach. If the expense is not urgent, save first.

The right choice depends on your cost tolerance, timeline, risk appetite, and what collateral you’re comfortable pledging.

Final Thoughts

Borrowing against stocks is a legitimate tool for investors who understand the mechanics and manage the risks carefully. It can be much cheaper and faster than unsecured borrowing or selling appreciated securities. But it’s not free leverage—it comes with margin calls, forced liquidations, interest costs, and tax complications.

The key is discipline: use SBLOCs for specific, time-limited needs; maintain a large equity cushion; diversify your collateral; and keep a cash reserve handy. Treat the feature as insurance for liquidity, not as an excuse to amp up leverage or fund ongoing spending.

If you do decide to borrow against stocks, follow the step-by-step action plan above, stress-test your scenarios, and stay engaged with monitoring. Your financial advisor and tax professional should be in the loop from the start.