A loan management account is a revolving line of credit secured by the investments in your brokerage account. You borrow against the stocks, bonds, and funds you already own instead of selling them, draw money as you need it, and pay it back on your own timing. There’s no fixed maturity, no required principal payments, and no set purpose for the funds, with one important exception: you can’t use the proceeds to buy more securities.
How the Credit Line Is Structured
A loan management account (often shortened to LMA) functions like a home equity line, but your portfolio is the collateral rather than a house. You draw funds when you need them, repay on your own schedule, and the available credit replenishes as the balance goes down. There’s no amortization schedule. Your only monthly obligation is the interest that accrued on whatever balance is outstanding.
The defining legal feature is that an LMA is a “non-purpose” loan under Federal Reserve Regulation U. Regulation U prohibits banks from extending credit secured by margin stock when the borrower will use the proceeds to buy or carry more securities.1eCFR. 12 CFR Part 221 – Credit by Banks and Persons Other Than Brokers or Dealers for the Purpose of Purchasing or Carrying Margin Stock At origination you sign a purpose statement confirming you won’t use the money that way. That single restriction is what separates an LMA from a margin loan, which exists specifically to buy more securities.
Everything else is fair game. Real estate purchases, tax bills, business investments, bridge financing between the sale of one property and the closing on another, tuition, a boat. The lender doesn’t dictate the use as long as it isn’t securities.
What You Can Pledge and How Much You Can Borrow
The lender looks at what’s in your account and assigns each holding a loan-to-value ratio based on how liquid and predictable it is. Publicly traded stocks, bonds, mutual funds, ETFs, and Treasury securities are all eligible. Private equity, restricted stock, real estate, and illiquid alternatives are not, because the lender needs assets it can sell quickly if it has to.
Advance rates vary widely by asset type. Diversified stock, ETF, and mutual fund holdings typically support borrowing up to roughly 70% of value, and certain Treasury securities can go above 90%.2Schwab Bank. Is a Securities-Based Line of Credit Right for You? Wells Fargo advertises a range of 50% to 95% depending on collateral.3Wells Fargo Advisors. Securities-Based Borrowing A single concentrated stock position gets a much lower advance rate than a diversified index fund, even if the dollar values are the same.
Your credit line isn’t fixed. It floats with the market value of what you’ve pledged. When your portfolio rises, so does your borrowing capacity. When it falls, the available credit shrinks, and if it falls far enough, the lender comes calling.
Interest, Payments, and Fees
Interest rates are variable and tied to a benchmark like SOFR or the prime rate, plus a spread the lender sets based on the size of the loan and your relationship with the firm. Larger balances get better spreads. Interest accrues daily on the outstanding balance and is billed monthly.
You are required to pay only the accrued interest each month. Principal can sit outstanding indefinitely as long as you keep up with interest and your collateral stays above the required threshold. There are no prepayment penalties, and any principal you repay immediately becomes available to borrow again.
Upfront and ongoing fees are often minimal. Fidelity’s securities-backed line of credit, for example, charges no application, origination, annual, or repayment fees.4Fidelity. Securities Backed Line of Credit Not every lender is as generous, so ask before signing about unused-line fees, annual maintenance charges, wire transfer costs, and any state filing fee the lender charges to perfect its security interest.
Why Investors Use One
The main appeal isn’t the rate or the convenience. It’s the tax treatment. Selling appreciated stock triggers capital gains tax on the difference between what you paid and what you sold it for. Borrowing against the same stock is not a sale. No gain is realized, no tax is owed, and the full position keeps working in the market.
That matters most for investors sitting on concentrated positions held for years, where unrealized gains can represent most of the position’s value. Selling would mean handing a large slice to taxes; borrowing preserves the position and its future growth. The same logic feeds into estate planning, since under current law heirs inherit assets at their date-of-death value rather than the original cost basis, effectively erasing the built-up gain.
Maintenance Calls and Forced Liquidation
If your portfolio drops enough that the outstanding loan exceeds the allowable loan-to-value ratio, the lender issues a maintenance call. This is the securities-based lending version of a margin call. The collateral cushion has gotten thin, and you have to fix it.
Your options are usually to:
- Deposit cash into the linked account to bring the ratio back in line.
- Pledge additional eligible securities as collateral.
- Pay down the loan to reduce the outstanding balance.
If you don’t act quickly enough, the lender has the contractual right to sell your pledged securities without your consent. They don’t have to sell the positions you would have chosen, and they don’t have to wait for a rebound. Forced liquidation in a downturn is the worst case: you lose positions at depressed prices and can trigger a large tax bill on low-basis securities. The very outcome the strategy was meant to avoid gets forced on you at the worst possible time.
Other Risks Worth Knowing
An LMA is a demand loan. The lender can call the entire balance due at any time, for any reason, not only because your collateral dropped.5FINRA. Securities-Backed Lines of Credit In practice this rarely happens when the account is in good standing, but the contractual authority is there, and shifts in the lender’s risk appetite or policy could trigger it.
Many LMA agreements include cross-default clauses. If you default on another obligation, a mortgage, a business line of credit, even a credit card, the LMA lender can declare your credit line in default too and demand repayment. Read the cross-default language before signing and check whether there’s a cure period.
Neither the credit line nor the borrowed funds carry FDIC or SIPC protection. If the lender runs into financial trouble, your rights are governed entirely by the loan agreement.
Is the Interest Tax Deductible
It depends entirely on where the money goes, not on the fact that securities back the loan. The IRS uses interest tracing rules under Treasury Regulation Section 1.163-8T, which allocate interest expense based on what you actually spent the borrowed funds on.6govinfo. 26 CFR 1.163-8T – Allocation of Interest Expense Among Expenditures (Temporary) Every draw needs a paper trail.
If you trace the proceeds to an investment purchase, such as a stake in a private fund or income-producing real estate partnership, the interest qualifies as investment interest expense. It’s deductible up to the amount of your net investment income for the year, with any excess carrying forward.7Office of the Law Revision Counsel. 26 USC 163 – Interest You report it on IRS Form 4952.8Internal Revenue Service. About Form 4952 – Investment Interest Expense Deduction
If you use the money for personal expenses like vacations, tuition, or consumer purchases, the interest is personal interest and is not deductible. Limited exceptions exist for qualified residence debt and, for tax years 2025 through 2028, certain vehicle loan interest, but neither applies to a typical LMA draw used for personal spending. If the IRS audits your return and you can’t trace a draw to a deductible purpose, the interest defaults to non-deductible personal interest.
Who Qualifies and How Setup Works
LMAs target investors with significant liquid portfolios, and minimums vary. Schwab’s Pledged Asset Line requires at least $100,000 in loan value of collateral in the pledged account.9Schwab Bank. Pledged Asset Line Frequently Asked Questions Wells Fargo’s Priority Credit Line has a minimum initial borrowing power of $75,000.3Wells Fargo Advisors. Securities-Based Borrowing Private wealth programs may set higher thresholds.
The lender reviews your credit history and overall financial picture alongside the collateral. Once approved, the credit line is linked to your brokerage account. The pledged account typically loses certain features: margin capability, check-writing or debit card privileges, and some options-trading strategies may be restricted.9Schwab Bank. Pledged Asset Line Frequently Asked Questions You can still buy and sell securities in the account. What you can’t do is layer on features that would conflict with the lender’s security interest.
Once the line is active, drawing funds is straightforward. Most lenders let you initiate electronic transfers or wires online or by phone, and money usually arrives within a business day or two.