Most providers of securities-backed liquidity describe their capital as available, committed or ready. “Prefunded” is a narrower word. It means the capital exists and is allocated before the operational steps that release funds begin, not raised after the borrower’s shares have arrived. The difference sounds technical. In practice it decides who carries the risk if the money does not appear.
This piece explains the term, the order in which the documents should be signed, the failure pattern the word is meant to rule out, and how a shareholder or their counsel can check it before any shares move.
The failure pattern: shares first, money later
The pattern is simple and well known in this market. A provider asks the shareholder to transfer or deposit shares first. Only then does it look for a funder, or look for a way to raise cash against the shares it now controls. If the funder does not appear, or the terms change, the shareholder has lost control of the position and still has no cash.
The documents may look complete. The problem is the sequence. The provider’s commitment depends on capital it does not yet have, while the shareholder’s commitment, the shares, has already been delivered.
“Prefunded” is meant to reverse that order. The capital is in place first. The shares move into a controlled account second. Funds are released only after the economics are confirmed in writing.
What prefunded means at Silo
Silo deploys its own capital directly. It is a principal, not a broker, and its execution is not brokerage. Its capital is prefunded before operational release mechanics begin, and no securities selling is required for execution. Silo’s facilities are non-recourse and are structured without personal or corporate liability beyond the pledged collateral. They are described on the Structured Liquidity Facilities and Securities-Backed Credit pages.
Silo is not a broker, a placement agent or an investment adviser. No outside party may bind or commit Silo.
The four documents, and the order they come in
A Silo facility is documented through four instruments. Each has one job:
Facility Agreement. Sets the terms of the facility.
Collateral Management Agreement. Governs how the pledged shares are held and controlled through the executing broker-dealer.
Promissory Note. Evidences the borrower’s obligation.
Closing Statement. Confirms the economics of the transaction before any funds are released.
Each is explained in detail in the four documents of a structured facility.
The operational sequence runs in this order. First, the Facility Agreement and the Promissory Note are signed, so the terms are fixed before anything moves. Second, the borrower opens an account in their own name at the designated broker-dealer, and Silo’s capital for the facility is deposited into that account, where the borrower can see it before any shares move. Third, the shares are deposited into the same account. Fourth, the Collateral Management Agreement is executed and the broker-dealer activates the collateral parameters. Fifth, Silo issues the Closing Statement confirming the economics, and the borrower signs it. Sixth, on the borrower’s signature, the release of funds is instructed immediately; any further tranches follow the Facility Agreement.
The operational steps are carried out by licensed securities firms and broker-dealers, not by Silo itself.
Why the order matters
Four features of that sequence protect the shareholder.
The capital is visible before the shares move. It sits in the borrower’s own account at the broker-dealer, not in an account the lender describes but the borrower cannot see.
The shares go to a designated account at a licensed broker-dealer, under a written collateral agreement. The account is in the borrower’s own name, and the broker-dealer, not the lender, carries out the operational steps.
The economics are confirmed in writing, in the Closing Statement, and nothing is released until the borrower has signed it. The shareholder does not discover the terms after the fact.
The release comes from capital that already exists. Nothing in the sequence depends on selling the shares, lending them out or finding a funder later.
Compare that with the failure pattern. There, the one step that cannot easily be reversed, moving the shares, comes before the one step that is uncertain, finding the money.
How to verify it before your shares move
A shareholder, or their counsel, can test the word “prefunded” with a short set of questions. A lender with prefunded capital should answer each one directly and in writing.
Whose capital is it? The lending entity named in the Facility Agreement should be the entity whose capital funds the facility. Be wary of references to “partners”, “funding sources” or “a network” that do not name who commits.
Can the capital be evidenced before the shares move? Ask what evidence will be provided, and when. At Silo, the capital for the facility is deposited into the borrower’s own account at the designated broker-dealer, where the borrower can see it before any shares move.
Where will the shares go? Ask for the name of the broker-dealer, the type of account and the agreement that governs it. At Silo, the account is in the borrower’s own name at a licensed broker-dealer, governed by the Collateral Management Agreement.
What triggers the release of funds? It should be a defined document, not a later fundraising step. At Silo, it is the borrower’s signature on the Closing Statement.
Are any fees payable before funding? Fees requested before capital is evidenced and before definitive documentation are the most common warning sign in this market.
Pledging shares can raise disclosure and other questions for substantial shareholders, directors and insiders, depending on the exchange and the reader’s own position. Those are questions for the reader’s own counsel and company secretary, not for the lender.
What prefunded does not mean
Prefunded describes where the money is. It does not describe how long the diligence and documentation process takes before closing; that depends on diligence, documentation and account setup, and no timeline should be read as a commitment. Nor does it mean every request will be funded. Every matter remains subject to Silo’s own review, diligence, jurisdictional analysis, compliance review and definitive documentation.
For the wider comparison with a bank’s margin line, see “Margin loan vs non-recourse structured facility”. For the full list of questions to put to any lender, see “Twelve questions to ask any securities-backed lender”.
Frequently asked questions
Is “committed capital” the same as prefunded capital?
Not necessarily. A commitment can depend on capital that will be raised later. Prefunded means the capital is in place before the operational steps that release funds begin. Ask which one you are being told.
Does Silo sell my shares to fund the facility?
No securities selling is required for execution. Funds are released from Silo’s prefunded capital on the borrower’s signature of the Closing Statement.
Where are the pledged shares held?
In an account in the borrower’s own name at a licensed broker-dealer, under the Collateral Management Agreement. The operational steps are executed by licensed securities firms and broker-dealers.
Can I see evidence of the capital before I deposit shares?
Yes. Silo’s capital for the facility is deposited into the account in your own name at the designated broker-dealer, where you can see it before any shares move.
Does prefunded mean the facility will close quickly?
No. Prefunded describes the source of capital, not the length of the diligence and documentation process before closing. Once the borrower signs the Closing Statement, release is instructed immediately; the time before that depends on diligence, documentation and account setup, and no timeline is a commitment.
This material is provided for informational purposes only. Nothing herein constitutes investment, legal, tax, securities, accounting or regulatory advice, an offer to lend or provide financing, a solicitation, a recommendation, or a commitment to enter into any transaction. Access may be restricted by jurisdiction or residency. Any potential facility remains subject to Silo’s review, diligence, approval, jurisdictional analysis, compliance review and definitive documentation. Readers should consult their own professional advisers.