A founder, director or long-term investor with most of their wealth in one listed position has two ways to raise capital from it: sell part of the position, or borrow against it. The consequences of selling are the ones the holder already knows. Borrowing raises capital against the position rather than out of it, and whether it is the right route turns on the three questions a bank asks of any product: what do you get, when do you get it, and what is at risk.
This piece answers those three for a loan against listed shares, then covers how the shares are held, what the lender may do with them and why, and how the facility is repaid.
What you get
An advance of capital secured by the shares. The amount is set against the market value of the shares, for a term, at a cost of interest and fees, and all of it is stated in the documents before signing. The proceeds are the holder’s to use for a personal, strategic or corporate purpose.
Non-recourse describes the lender’s recovery rights: they are limited to the pledged shares, within the scope of the transaction documents. If the position is ever enforced, the holder keeps the funds already released and owes nothing further. The holder’s other assets are outside the arrangement.
When you get it
The order of the steps separates a funded facility from a promise of one. In a prefunded facility, the capital for an approved advance is deposited into an account opened in the borrower’s name at the designated licensed broker-dealer before the corresponding shares are deposited. The borrower sees the capital in the account before any shares move. Funds are released when the agreed settlement conditions are met.
Two consequences follow. The advance is funded from the lender’s capital, placed before the shares move; it is not funded by selling the shares. And where a facility is funded in more than one advance, the steps are matched: no shares are deposited for an advance until that advance’s capital is in the account, so the holder is never exposed on a portion that has not been funded. Deposited capital, released funds and the total amount requested remain three different things, and each advance remains subject to the lender’s approval.
What is at risk
The share price. A facility secured by a single listed position carries the risk of that position, and the documents say in advance what a fall in price does. There is a warning level, at which the holder may remedy by adding collateral or repaying part of the facility, and an enforcement level, at which the lender may realise the collateral. Share-pledge financing in several markets uses the terms warning line and liquidation line for the same two points. The documents also contain the standard events of default of any secured facility; the event that matters in practice is the price of the collateral.
If enforcement occurs, the consequence is the one non-recourse describes: the pledged shares are lost, the funds released are kept, and nothing further is owed. Non-recourse limits what the lender may recover. It does not protect the shares against the market, and it is not an absence of risk.
How the shares are held
The standard structure is a pledge. The holder keeps title to the shares and grants security over them. The shares sit in the borrower’s own brokerage account at the designated broker-dealer, under a collateral management agreement that sets what the lender may and may not do during the term. On repayment the holder receives back the same or equivalent shares. Dividends, voting and corporate actions during the term are dealt with under the documents in the standard institutional way.
A transfer-of-title structure exists for holders whose circumstances call for it. It is a different arrangement and is documented as one; it should not be confused with the pledge described here.
For a substantial holder, director or insider, a pledge can carry disclosure obligations that depend on the exchange and on the holder’s own position. Those are questions for the holder’s counsel and company secretary, and where they apply, the number and timing of movements is part of how the facility is planned.
Why non-recourse requires collateral management
A lender with no recourse to the holder’s other assets carries the downside of the stock itself. It can only do that by managing its risk in the collateral, as any institution financing a concentrated position does. The right to do so, its limits, and the obligation to return the same or equivalent shares on repayment are written in the collateral management agreement, where the holder’s counsel reads them before signing. Non-recourse and collateral management are one feature seen from two sides.
That is why the question to put to any lender is not “will you hedge” but “where is your collateral-use right written, and what are its limits.” A lender who offers non-recourse and says there is no risk management in the collateral is either carrying a loss it cannot carry or managing the collateral somewhere the holder has not been shown. The arrangement to look for has the lender’s capital in the account before the shares move, and the lender’s rights over the shares on the page.
Repayment
The documents set how the facility is repaid, whether it may be redeemed early, what is owed on early redemption, and what is returned. The four should be read together, because the value of the structure to a holder who intends to keep the position lies in getting the shares back on terms that were known at the outset.
What it is not
It is not a sale. The holder keeps title under a pledge, and the economics of the shares during the term are whatever the documents say they are. An arrangement that is funded by selling the shares on receipt is, in substance, a sale, whatever the document is called.
It is not a brokerage margin loan. A margin borrower may remain liable for a shortfall, and the broker may liquidate without advance notice. The comparison that matters is recourse, the sequence of funding, who holds the shares and under what agreement, what changes the position, and cost — not the product name.
When it suits a holder
The structure suits a holder who wants capital for a defined purpose against a listed position they intend to keep, and who can accept the terms on which the shares are held and managed during the term. Eligibility turns on the shares themselves: listed equity with market liquidity and clear ownership and transferability. Restricted or control shares are assessed case by case. A holder who needs the whole amount committed by a fixed date for another transaction should say so at the outset, so that compatibility is established before either side commits further resources.
Silo’s approach
Silo lends as principal against listed shares, on a pledge: the holder keeps title and grants security, and the shares stay in the borrower’s own account at the designated licensed broker-dealer under the Collateral Management Agreement.
For an approved advance, capital is placed in an account opened in the borrower’s name at the designated licensed broker-dealer before the corresponding collateral is deposited, and funds are released when the agreed settlement conditions are met. The advance is funded from Silo’s capital. It is not funded by selling the borrower’s shares. Where a facility is funded in more than one advance, the steps are matched: no shares are deposited for an advance until that advance’s capital is in the account. Silo aims to fund in a single advance; the number of advances is set when the facility goes live, having regard to market conditions in the shares.
Silo manages its risk in the collateral as an institution does, within the limits written in the Collateral Management Agreement, and returns the same or equivalent shares on repayment. A maintenance event gives the borrower the opportunity to add collateral or repay part of the facility before any enforcement. On enforcement, the borrower keeps the funds already released and owes nothing further. Most Silo facilities may be redeemed early under the agreement, by repayment in full with interest; no early-repayment penalty applies.
The facility is documented in four instruments: Facility Agreement, Collateral Management Agreement, Promissory Note and Closing Statement. Full drafts are provided to the borrower’s counsel before signing. No fee is payable to Silo before funds are released; each Closing Statement shows the gross advance and the net amount released after fees.
Frequently asked questions
Do I keep ownership of my shares during the term?
Under a pledge, yes. The holder keeps title and grants security over the shares, which remain in the borrower’s own account at the designated broker-dealer under the collateral management agreement. On repayment the holder receives back the same or equivalent shares. The agreement also sets what the lender may do with the shares during the term; read the ownership, permitted-use and return provisions together.
What happens if the share price falls?
The documents say in advance. At the warning level the holder may add collateral or repay part of the facility. At the enforcement level the lender may realise the collateral; the holder keeps the funds already released and owes nothing further. Non-recourse limits what the lender may recover; it does not prevent the loss of the collateral.
Is the loan funded by selling my shares?
Not in a prefunded facility. The lender’s capital is placed in the borrower’s account before the shares move, and the advance is funded from that capital. The lender manages its risk in the pledged shares under limits written in the collateral management agreement and returns the same or equivalent shares on repayment. An arrangement funded by selling the shares on receipt is, in substance, a sale.
Discuss a proposed facility
An initial discussion begins with the issuer, exchange, size of the shareholding and financing objective. Silo assesses each proposal individually, with funding subject to underwriting, lender approval and the definitive agreements.
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. Securities-backed financing involves risk, including loss of collateral. 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.