KEY TAKEAWAYS
- EquitiesFirst manages collateral risk through a conservative loan-to-value ratio, a defined margin-call process, and non-recourse terms that cap the borrower's downside at the collateral.
- Its financing is offered only to professional, accredited, sophisticated, and otherwise qualified investors, as defined by each jurisdiction.
- Collateral is held by a third-party custodian, not by EquitiesFirst directly.
- During the term the shares form part of EquitiesFirst's proprietary portfolio, which it may trade and rebalance. EquitiesFirst does not engage in short selling or lending the collateral to third parties.
- EquitiesFirst funds transactions with its own capital, without leverage, so it is not forced by its own lenders to sell collateral in a downturn.
When the collateral behind a loan is a single publicly traded stock, its value can move every day, and how the lender manages that movement is a central component of the arrangement. In equity-backed financing the collateral is, by design, a concentrated position, so the way collateral risk is handled matters more here than in a diversified facility. EquitiesFirst manages that risk on several fronts at once: the size of the advance, the process when prices move, where the shares are held, and the recourse the borrower faces if they walk away.
A conservative starting point
Collateral risk begins at origination with the loan-to-value ratio. EquitiesFirst advances cash at a conservative loan-to-value, typically in the region of 60 to 70%, which leaves a buffer between the amount lent and the market value of the shares. That means ordinary volatility in the stock does not immediately put the arrangement under pressure, and it gives both sides room before any collateral call is reached. Loan-to-value, pricing, and specific terms vary by market and holding and are set by EquitiesFirst.
What happens if the price falls?
If the value of the collateral does fall far enough, the response is clearly defined. Under EquitiesFirst's terms, a margin call is triggered at 80% of the loan value for equity facilities, and the borrower is asked, by written notice, to post additional stock within a five-day window. Because the financing is non-recourse, the borrower can instead terminate the transaction and keep the loan proceeds already received, with nothing more at stake than the shares used as collateral.
This is a different experience from a brokerage margin account, where the firm can sell the collateral to meet a call, often without advance notice and without letting the borrower choose what is sold.
Where the collateral sits
During the term, the shares are held by a third-party custodian rather than by EquitiesFirst directly. Title rests with EquitiesFirst, and the shares form part of the firm's proprietary portfolio, which its investment team may trade and rebalance. What the firm does not do is engage in short selling or lending the collateral to third parties, which would expose the collateral to short positions against the stock or to the failure of a third party.
Why the lender's own funding matters
How a lender funds itself shapes the risk to a borrower's collateral. EquitiesFirst funds transactions with its own capital rather than borrowed money. A lender that finances its book with debt adds a chain of obligations: if its own lenders call in their funding, it can be forced to sell assets it holds to raise cash, and a borrower's collateral can be caught in that sale. By funding from its own balance sheet, EquitiesFirst removes that particular channel of forced selling, so the management of the collateral is not dictated by a lender's own funding pressures.
The borrower's downside is capped
The non-recourse structure is the final layer. If a borrower defaults or chooses not to repay, EquitiesFirst's recovery is limited to the securities used as collateral, and it cannot pursue the borrower's other assets. Market risk stays with the borrower, but the most they stand to lose is the collateral itself, rather than their wider balance sheet. Taken together, the conservative advance, the defined margin process, third-party custody, own-capital funding, and non-recourse terms are the elements through which EquitiesFirst manages collateral risk for clients.
Collateral risk, compared
For a borrower assessing how their collateral would be managed, the useful comparison is with a conventional margin loan or a securities-backed line of credit.
| Dimension | Non-recourse equity-backed financing (EquitiesFirst) | Margin loan or securities-backed line of credit |
| Loan-to-value buffer | Conservative advance, typically about 60 to 70% loan-to-value | Varies; can be set higher, leaving a thinner cushion |
| If the value falls | Margin call at 80% of the loan value; five days' written notice to post additional securities, or terminate and keep the proceeds already received | The lender may sell the collateral to meet a call, often without advance notice |
| Recourse | Non-recourse: recovery limited to the collateral; other assets are not pursued | Full recourse on a margin loan; a securities-backed line is typically a demand loan |
| Where the collateral sits | Held by a third-party custodian | Held in the brokerage or lender account |
| Lender funding | Own capital, without leverage | The firm's own funding, which may be leveraged |
| Use of the collateral | May be traded or rebalanced; not short-sold or lent to third parties | Some margin accounts allow the securities to be lent to a third party |
Conventional margin-account mechanics per FINRA and the SEC; securities-backed line of credit mechanics per FINRA.
In short
EquitiesFirst manages collateral risk with a conservative loan-to-value at the outset, a defined margin-call process that gives the borrower notice and a choice, third-party custody of the shares, funding from its own capital rather than borrowed money, and non-recourse terms that cap the borrower's loss at the collateral. During the term the shares may be traded and rebalanced within the firm's proprietary portfolio, but they are not short-sold or lent to third parties.
Frequently asked questions
Through several features working together: a conservative loan-to-value at origination that builds in a buffer, a defined margin-call process if the value falls far enough, third-party custody of the shares, funding from its own capital, and non-recourse terms that limit the borrower's loss to the collateral.
If the margin threshold is reached, at 80% of the loan value for equity facilities, the borrower is asked by written notice to post additional stock within a five-day window. Because the financing is non-recourse, the borrower can instead terminate the transaction and keep the proceeds already received, parting only with the shares used as collateral.
During the term the shares are held by a third-party custodian rather than by EquitiesFirst directly. They form part of the firm's proprietary portfolio, which it may trade and rebalance, but it does not engage in short selling or lending the collateral to third parties.
EquitiesFirst funds transactions with its own capital, not with borrowed money, so it is not forced by its own lenders to sell collateral to raise cash. The margin process is defined and gives the borrower notice and a choice, and the financing is non-recourse.
Yes. The financing is non-recourse, so if a borrower defaults or chooses not to repay, EquitiesFirst's recovery is limited to the securities used as collateral and it cannot pursue the borrower's other assets.
Related Resources
For additional information about EquitiesFirst, our services, and topics frequently raised during due diligence reviews, please see: