To take a loan against stocks, you open a securities-based line of credit with a brokerage or bank, pledge the eligible holdings in your account as collateral, and draw cash against a percentage of their market value. You keep owning the shares, you avoid selling and triggering capital gains, and you pay interest only on what you actually borrow. The catch sits in the fine print: if your portfolio falls far enough, the lender can sell your securities to cover the balance, sometimes without calling you first.
Pick the Right Product First
Two different loans use a brokerage account as collateral, and they are not interchangeable.
A securities-based line of credit, or SBLOC, is a revolving credit line secured by your portfolio. You draw funds when you need them, pay interest only on the drawn balance, and repay principal on your own schedule. SBLOCs are “non-purpose” loans, which means you can spend the money on almost anything except buying more securities.1SEC. Investor Alert: Securities-Backed Lines of Credit Common uses include real estate down payments, business expenses, bridge financing, and large purchases.
A margin loan is the opposite tool. It is designed specifically for buying additional securities inside the brokerage account, and Federal Reserve Regulation T governs it.2FINRA. Margin Regulation If your plan is to pull cash out of the account for something other than more investing, you want an SBLOC. The rest of this guide covers that product.
What You Can Pledge and How Much You Can Borrow
Lenders want liquid, publicly traded collateral. Large-cap stocks, ETFs, mutual funds, and Treasury securities typically qualify, and the advance rate depends on the asset. A lender might lend around 70% of the value of stocks, mutual funds, and ETFs, and more than 90% of the value of Treasuries and cash equivalents.3Charles Schwab. What Is a Securities-Based Line of Credit? Volatile or thinly traded holdings get lower advance rates, and some will not qualify at all.
Most firms set a minimum portfolio value to open the line. A common floor is $100,000 in eligible pledged assets.4FINRA. Securities-Backed Lines of Credit Explained Concentration matters too. An account dominated by one or two stocks is riskier collateral, so the lender may cut the borrowing limit or decline the application.
How the Application Works
The paperwork is lighter than a mortgage or personal loan because the brokerage already sees your holdings and their real-time value. You’ll typically provide identification, a Social Security Number or Taxpayer Identification Number, and proof of residency for Know Your Customer requirements, then designate the account to pledge and the credit limit you want.
Applications usually run through the brokerage’s online portal or a wealth management representative. Expect the lender to ask how you plan to use the funds, mainly to confirm the proceeds won’t be used to buy securities. You will link a bank account for transfers. Once approved, funds are generally available within a few business days to a week from the date you sign the loan agreement.4FINRA. Securities-Backed Lines of Credit Explained The lender places a lien on the pledged account, which restricts your ability to sell or transfer those assets while the loan is outstanding.
Interest Rates and Repayment
SBLOC rates are variable, usually set as the Secured Overnight Financing Rate (SOFR) plus a spread that narrows as your collateral grows. Schwab’s pledged asset line, for example, charges spreads from 4.40% above SOFR for accounts starting at $100,000 down to 2.40% above SOFR for collateral of $2.5 million or more.5Charles Schwab. Pledged Asset Line Rates Some firms add discounts based on total assets held with them. Because the rate floats, your cost moves with SOFR.
Interest accrues daily and is billed monthly. The required monthly payment is interest only, and the principal stays outstanding until you decide to pay it down.4FINRA. Securities-Backed Lines of Credit Explained You can repay any amount at any time and borrow again later, much like a home equity line. The downside of that flexibility is that the debt can linger indefinitely on minimum payments, and interest that compounds into the balance can eat into the account over time.
What You Cannot Spend the Money On
You cannot use SBLOC proceeds to buy or trade securities.1SEC. Investor Alert: Securities-Backed Lines of Credit The restriction comes from Federal Reserve Regulation U, which requires lenders to determine the actual purpose of a loan secured by margin stock and apply margin rules if the money is used to buy or carry securities.6eCFR. 12 CFR Part 221 – Credit by Banks and Persons Other Than Brokers or Dealers (Regulation U) Stating a different purpose on the application doesn’t fix it. The lender must act in good faith and can deny or restrict the loan if the real intent appears to be buying stock.
The Risk That Matters Most: Maintenance Calls
Your pledged portfolio’s market value changes daily, but the loan balance does not shrink to match. If the collateral falls below the lender’s required threshold, you get a maintenance call. You will have to deposit more assets or pay down the loan, usually within two or three days.4FINRA. Securities-Backed Lines of Credit Explained
FINRA sets a baseline minimum maintenance margin of 25% of the current market value of long equity positions, and most brokerages impose higher requirements of 30% to 40%.7FINRA. FINRA Rule 4210 – Margin Requirements If you cannot meet the call, the lender can sell your securities and keep the proceeds to cover the shortfall. Brokers can liquidate at their discretion to eliminate a deficiency, and they often do so without advance notice.2FINRA. Margin Regulation These forced sales tend to happen during market drops, when prices are depressed. You absorb the losses, and the sale can trigger capital gains taxes.
The practical defense is simple: do not borrow near the maximum advance rate. A wide cushion between your balance and your collateral’s value is the only real protection.
The Tax Angle
Avoiding capital gains is one of the main reasons people borrow against stocks instead of selling them. If you’ve held appreciated shares for years, selling triggers tax. An SBLOC lets you access the value without that event. The benefit evaporates if the lender force-sells during a maintenance call, because you’ll owe capital gains on those proceeds the same as a voluntary sale.4FINRA. Securities-Backed Lines of Credit Explained
Interest deductibility turns on what you do with the cash. Interest on proceeds used for investment purposes can qualify as investment interest under federal tax law, deductible only up to your net investment income for the year, with any excess carried forward.8Office of the Law Revision Counsel. 26 U.S. Code 163 – Interest Spend the funds on personal expenses like a renovation or a car and the interest generally isn’t deductible at all. Since SBLOCs cannot fund securities purchases, you cannot claim the deduction on that basis either. Check with a tax advisor before counting on any savings.
Other Terms Buried in the Contract
- SBLOCs are demand loans. The lender can call the entire balance due at any time, for any reason, not only when collateral drops. In practice this is rare without cause, but the contractual right exists.4FINRA. Securities-Backed Lines of Credit Explained
- Collateral eligibility can change. A security that qualified when you opened the line may be reclassified later, which cuts your credit limit and can force you to post more assets or pay down the balance immediately.4FINRA. Securities-Backed Lines of Credit Explained
- Some agreements let the lender raise the required collateral percentage, producing the effect of a maintenance call even when the market hasn’t moved.
- Rates are variable. A rising SOFR environment pushes carrying costs up with no fixed-rate protection.
- While the lien is in place, you generally cannot sell, transfer, or substantially rearrange the pledged securities without the lender’s approval.
Used as a short-term liquidity tool, with a repayment plan and a comfortable cushion above the maintenance threshold, an SBLOC does what it is designed to do. Treated as cheap, open-ended money, it can turn expensive at the worst possible moment, because the combination of variable interest, demand-loan status, and the possibility of forced liquidation during a downturn means the true cost tends to spike when you are least able to absorb it.