What Secures the Loan
A Lombard loan is borrowing secured by assets accepted by the lender, commonly a securities portfolio or cash. Under a pledge, the borrower can retain ownership and investment income while the lender controls the collateral and assigns it a lending value. The facility documents determine the borrower, collateral owner, eligible holdings, currency, interest and repayment; title-transfer arrangements require a separate ownership analysis. UBS’s Lombard loan description includes equities, bonds, funds and cash. The bank’s ability to monitor prices does not remove credit approval, collateral controls or the risk of a margin call.
Portfolio Pledge and Cash-Collateral Facility
DBS Private Bank in Singapore offers a Multi-Currency Revolving Term Loan (MRTL) secured by liquid securities and other agreed assets. Once the facility is approved, clients can draw in ten currencies through digibank and view the available limit. The maximum amount depends on the portfolio’s lending value, which the bank may revise (DBS portfolio lending). Julius Baer provides Lombard loans against assets booked with and pledged to the bank. The financing can cover temporary liquidity needs, asset purchases or business funding without selling the portfolio. The use of proceeds can change during the loan term; the pledged portfolio is the basis for the lending. Availability and terms depend on the client’s domicile and the Julius Baer entity (Julius Baer Lombard lending; product availability). A cash-backed line also lets an owner finance a company while keeping the collateral in a separate account. British Atlantic Bank offers a 12-month USD facility from $500,000 against the client’s own cash, with drawdowns from $100,000 paid in USD or USDC/USDT. The arrangement identifies the cash owner and corporate borrower separately. Available cash collateral earns 4% annually from day 45; the borrowing rate is agreed separately. Collateral-release terms determine when the owner can recover the pledged money. A securities-backed loan requires its own eligible-asset list and advance rates.
How the Limit Is Calculated
The limit is calculated from the market value of the portfolio minus a haircut — a discount for risk. The bank assigns each asset class its own advance rate, or loan-to-value (LTV): the more liquid and stable the security, the more can be borrowed against it.
| Asset class | Advance rate: determining factors |
|---|---|
| High-quality government bonds | Issue, maturity, liquidity and currency; the asset-class label does not establish one LTV |
| Investment-grade corporate bonds | Issuer credit quality and liquidity; an investment-grade rating alone does not guarantee an advance rate |
| Blue-chip stocks and broad index funds | Blue chips generally have a smaller margin than small caps; a fund’s underlying holdings also matter |
| Individual volatile stocks | Higher volatility reduces lending value; a holding can have no eligible lending value |
| Concentrated positions, illiquid holdings, complex structured notes | Concentration and liquidity can further reduce the limit or exclude a holding |
A contractual haircut determines the collateral’s lending value. UBS expressly reserves discretion to change that value. The FINMA rules effective from 1 January 2025 address minimum bank capital: a prudential haircut does not establish a promised customer LTV. In Luxembourg, Circular CSSF 22/824 and FAQ question 1 require prudent, regularly reviewed haircuts, close monitoring (for example daily) and timely margin calls/enforcement. The FAQ does not prescribe one percentage grid for every private portfolio. The facility form and limit are agreed with the bank.
Collateral terms across six countries
These are published institution-specific examples, not national minima or guarantees of lending. In a simple model without currency or portfolio adjustments, haircut = 1 − advance rate; coverage ratio, initial LTV and maintenance LTV must be compared separately.
| Country and primary example | Published parameter | Haircut interpretation and limit |
|---|---|---|
| Switzerland — Swissquote Bank SA | Limit follows collateral value and may be reduced at any time | No fixed class rate is promised here: check the contract and current valuation. This Swiss entity is separate from Bank Europe |
| Luxembourg — Swissquote Bank Europe | Up to 80% of eligible financial assets | At most 80% means at least a 20% gap in a simple model, not 80% for every security. Concentration/risk limits apply; this product cannot finance property purchase or renovation |
| Singapore — UBS Lombard FAQ | UBS determines eligible assets and security margins and may change them | No single percentage is promised for all portfolios; compare individual advance rates, currency and current available credit |
| Germany — S Broker | DAX/EuroStoxx 50 and ETFs: 60%; money-market funds: 80%; bonds: 50–80% | Equivalent simple-model discounts: 40%, 20% and 20–50%. Specified non-EUR funds/bonds lose 20 percentage points. Cash withdrawals are capped at 75% of lending value; the bank may revise rates |
| France — BoursoBank | Up to 50% initially; ongoing coverage at least 180% of debt | Initial coverage is 200%. Maintenance coverage of 180% corresponds to about 55.6% LTV, not a 180% haircut. Eligible assets and product conditions apply |
| Spain — Banca March | 40–70% portfolio value, expressly indicative in the bank’s explanation | Indicative LTV, equivalent to 30–60% discounts in a simple model; actual assets, liquidity and risk determine the decision, not a national tariff |
For comparable offers, give banks the same ISINs, currencies, quantities and intended use of proceeds. Obtain position-level values, concentration/FX adjustments, revision and enforcement terms. Otherwise differences in portfolios can be mistaken for differences between banks.
Rate
A floating rate usually combines a benchmark and bank margin; fixed-rate products also exist, including BoursoBank. The loan is secured by collateral, so the margin is small and the resulting rate comes out lower than on unsecured credit. The benchmark depends on the currency of the loan, and by September 2026 benchmark levels diverge markedly.
| Currency | Benchmark | Level |
|---|---|---|
| Dollar | SOFR | around 3.65 percent (Fed target range 3.50–3.75 percent since December 2025) |
| Euro | Three-month EURIBOR | around 2.6–2.7 percent (ECB raised the deposit rate to 2.25 percent in June 2026) |
| Swiss franc | SARON | around 0 percent (SNB policy rate at zero since June 2025) |
Levels are taken from the NY Fed, the ECB and the SNB as of early September 2026. The bank's spread over the benchmark depends on the size of the line and the quality of the collateral and is negotiated at private banks; public tariffs give the reference points: a comparison of Swiss providers shows all-in CHF rates from 1 to 3 percent with SARON near zero, while retail-oriented Swissquote charges 1.95 points over the benchmark in every currency. Compare the chosen currency’s rate with spending currency, exchange-rate exposure and collateral terms. With a floating rate, when central banks raise rates, as the ECB did in June 2026, servicing costs rise together across the whole line, and the buffer to a margin call narrows.
Use Cases
A lombard loan is taken to raise cash without breaking an investment position: to finance the purchase of property or a stake in a business, to cover a cash-flow gap ahead of a large deal, to pay a tax bill, or, less often, to add leverage and buy more assets. For family capital it is a liquidity bridge when funds are needed promptly and selling a quality portfolio into a poor market would be uneconomic. A common scenario is a bridge to close a deal, which is then repaid from the proceeds or refinanced with a longer loan — for a home purchase abroad, usually a non-resident mortgage with its own LTVs, rates and document pack.
Premium financing
A separate branch of lombard lending funds the payment of a large insurance premium on unit-linked, whole-life or PPLI policies: the collateral is the policy itself with its accumulated cash value and, as a rule, an additional portfolio. The pledge mechanics are the same, but the interest-rate risk of the loan and the behaviour of the policy come on top of the portfolio's market risk, so the structure is built for a long horizon and a solid collateral buffer. The Singapore structure in full — single premium, the LTV grid, margin calls, interest deductibility through a VCC and the currency of the leverage — is set out in Universal Life in Singapore.
Loan and taxes
Borrowing against an existing portfolio can avoid an immediate sale, but the tax analysis must cover the entire arrangement. Identify the taxpayer and residence, use of proceeds, collateral ownership and any transfer or reuse, interest treatment, enforcement sale and succession rules. FINRA’s explanation of securities-backed credit expressly flags unintended tax consequences and forced disposals. A buy-borrow-die plan therefore needs a jurisdiction-specific calculation; the existence of a loan agreement alone does not establish tax neutrality.
The same technique is carried over to illiquid assets, where a sale costs an auction commission on top of the tax — borrowing against a collection instead of selling. For a client who has changed tax residence, the same technique helps wait out an unfavourable jurisdiction and avoid crystallising a gain too early. The precise consequences depend on the country of residence and the ownership structure, so a lombard loan is almost always incorporated into a broader structure: holding, family office, and an insurance wrapper.
Interest deductibility: a question of jurisdiction
Interest on a lombard loan rarely reduces tax by itself. In the US, the investment interest deduction under IRC §163(d) lets interest on borrowing for investment be deducted up to net investment income, and long-term gains and qualified dividends enter that base only by a special election — at the cost of their preferential rate (Form 4952); any disallowed interest carries forward to later years. In the UK there is no deduction for private borrowing beyond a narrow list of qualifying loans — loans to buy an interest in a close company, a partnership or an employee-controlled company — and the relief is capped at the greater of £50,000 or 25 percent of adjusted total income. Continental systems differ: Switzerland has a broad but capped deduction, Luxembourg considers income connection and expense type, and France excludes ordinary portfolio-loan interest. A company or fund instead needs its own tax regime and deduction restrictions assessed. The borrower's jurisdiction and tax wrapper change the economics of buy-borrow-die as much as the rate itself.
| Borrower resident in | Interest on a portfolio loan | Rule |
|---|---|---|
| Switzerland | Deductible up to taxable investment income plus CHF 50,000; not for a below-market loan from a company to a significant shareholder | Art. 33(1)(a) DBG, federal tax, version in force on 1 January 2026 |
| Germany | Not deductible: a flat €1,000 saver's allowance replaces all actual expenses on investment income | § 20(9) EStG |
| Spain | Not deductible: only custody and administration fees reduce investment income | Art. 26.1(a) LIRPF |
| Singapore | Usually nothing to set it against: one-tier dividends, foreign dividends received by individuals and capital gains are generally not taxed | IRAS guidance on dividends and on gains |
| Luxembourg | Interest can qualify where directly connected with taxable income; if dividends are 50% exempt, related expenses are also deductible only by half. Personal expenditure is considered separately under art. 109 | LIR arts. 105(2)(1), 105(4), 109(1)(1a); Guichet explanation |
| France | For an ordinary private securities portfolio, acquisition-loan interest or advances to preserve the portfolio are not deductible even under the progressive scale; PFU also disallows expense deductions. A different use of proceeds requires separate classification | BOFiP RPPM-RCM-20-10-20-70, §50; PFU rules |
The texts are the Swiss DBG, the German EStG § 20, the Spanish LIRPF and the IRAS pages on dividends and gains. The Swiss federal deduction is capped at investment income plus CHF 50,000; cantonal law needs a separate check. For Germany, Spain and Singapore, the table describes the ordinary private-portfolio treatment. In Luxembourg, securities-backed borrowing is not automatically deductible: the economic connection between use of the loan and income matters. In Luxembourg, personal-consumption interest may fall within a separate €672 annual ceiling shared with qualifying insurance premiums, with family increases; that is distinct from art. 105 income-acquisition expenses. Connection with exempt income can prevent relief. A capital-income-category loss generally cannot offset other income categories, subject to the stated substantial-holding/professional-income exception. In France, a portfolio pledge alone does not decide tax treatment: another asset or business use requires the rules for that income and a documented proceeds trail.
What to check in the contract
Read the facility’s commitment and demand clauses: whether the lender must keep a limit available, may reduce it, or may call for repayment. Then identify the margin-call trigger, notice method, cure period, valuation and sale powers. Currency mismatches add exchange-rate exposure to collateral-price movements. A cross-collateral clause can extend security across several positions or obligations, so the borrower must identify precisely which assets are restricted and when a disposal or transfer needs consent. These contractual rights determine how a price fall turns into an obligation to provide cash or repay.
A margin call in numbers
A $10 million blue-chip portfolio at a 60 percent advance rate supports a $6 million line; assume it is fully drawn. The market falls 20 percent: the portfolio is worth $8 million, the permitted debt is 60 percent — $4.8 million — against $6 million drawn. The shortfall is $1.2 million.
| Measure | At origination | Market −20% |
|---|---|---|
| Portfolio | $10m | $8m |
| Debt ceiling (60%) | $6m | $4.8m |
| Drawn | $6m | $6m |
| Shortfall | — | $1.2m |
There are three ways out. Post more collateral: assuming cash receives 100% lending value in the debt currency, it closes the gap one for one ($1.2 million), while securities count after the haircut — $1.2 million / 0.6 = $2 million of the same blue chips. Partially repay — the same $1.2 million. Or let the bank sell the pledge: a cure period of a few business days is typical — at HSBC Singapore, for example, 5 business days for a deep shortfall and up to 60 calendar days for a mild one — but the same facility is expressly uncommitted and payable on demand, so the bank may sell the collateral without waiting at all. Banks distinguish initial margin — the level at which they lend — from maintenance margin — the threshold to be maintained; the buffer between the two is the argument for not drawing the line to the ceiling: a fully drawn limit turns the first dip into a margin call.
A further stress is a haircut revision. In the same illustrative case, reducing the advance rate from 60% to 50% with no market move cuts the limit from $6m to $5m, creating a $1m shortfall without a price fall. After the portfolio falls to $8m, the new limit is $4m and the shortfall $2m. Selling already-pledged assets reduces debt and collateral together: at the original 60% rate, curing the $1.2m gap requires selling $3m, assuming all proceeds repay debt and ignoring fees/tax. The sale formula is (debt − advance rate × collateral value) / (1 − advance rate). This is model arithmetic; contractual thresholds and deadlines still need checking.
Pledge vs title transfer: who holds title
The legal form of the security matters as much as the LTV. A classic pledge keeps title with the client: the securities sit in a segregated custody account and the bank may not use them. The alternative — title transfer, or a pledge with a right of use clause — passes title or the right of use to the bank, which may rehypothecate the securities in its own operations. The difference surfaces if the bank fails: for the re-used securities the client turns from owner into an unsecured creditor. Check the right of use clause and the rehypothecation limit (for example, no higher than the debt outstanding), along with how custody segregation and deposit protection are arranged — more in the review of Geneva private banks.
Leverage Risks
Stress-test collateral lending value and borrowing cost together. Recalculate the outstanding principal and accrued interest after a price fall, a lower advance rate and an adverse currency move; then compare the resulting shortfall with cash the borrower can actually transfer within the contractual deadline. Keep the source of final repayment separate from the expectation that the portfolio will recover. A portfolio-size threshold alone does not measure those risks.
Q/A
Is it safe to draw a Lombard line to its full limit?
No. The maximum line shows what the bank will lend against today's collateral value and haircuts, not a safe debt level. If it is fully drawn, even a modest portfolio fall or haircut change can create an immediate shortfall and trigger a margin call.
What can the bank demand after a margin call?
The borrower will usually have to post acceptable collateral, add cash or repay part of the debt; if the demand is not met, the agreement may let the bank sell pledged assets. The cure period, valuation method and any right to act without waiting depend on the particular facility.
Why match the loan currency to the collateral?
A mismatch creates currency risk on top of portfolio movements. Even if the securities do not fall in their own currency, an adverse exchange-rate move can reduce their collateral value relative to the debt and bring a margin call closer, so the currency pair and the safety buffer must be assessed together.
How does a pledge differ from a title transfer?
Under a conventional pledge title normally remains with the client; title transfer or an agreed right of use gives the bank title or permission to use the securities. That changes rehypothecation and insolvency risk, so the contract must be checked for custody segregation and reuse rights.
Can a Lombard loan be treated as permanent income?
No. The facility creates liquidity, not income: interest accrues, the debt remains and the collateral is revalued. It is more resilient with moderate drawings and a large liquidity buffer; a floating rate and a falling market together can turn a temporary drawdown into a forced sale.