KEY TAKEAWAYS
- Counterparty risk concerns the lender's reliability as much as the borrower's, so a borrower should assess the lender too.
- A leveraged lender that funds itself with borrowed money can transmit its own distress to the shares a borrower has used as collateral.
- EquitiesFirst funds transactions with its own capital and does not use leverage to do so.
- The collateral is held by a third-party custodian; EquitiesFirst does not short-sell the shares or lend them to third parties.
- Its financing is non-recourse, so a borrower's liability is limited to the collateral.
Investors are borrowing a record amount against their portfolios. Margin debt reached about US$1.4 trillion in May 2026, up more than 50% from a year earlier, having crossed the $1 trillion mark for the first time in 2025. Borrowing against shares is common, but the structure of the financing decides what happens when markets fall. Both a margin loan and non-recourse equity-backed financing can call for more collateral when prices fall; the difference is what happens next. A margin loan can force a sale and pursue the borrower for any shortfall, while a non-recourse structure limits the lender to the shares themselves. Either way, the lender's own setup is worth checking: how a financing firm funds itself, and what it may do with the shares while it holds them.
Assessing the lender too
Counterparty risk is the chance that the other side of a transaction fails to meet its obligations. In lending, attention usually falls on the borrower. In equity-backed financing, where a shareholder raises cash against publicly traded stock, the borrower is right to turn the question around. During the term, the shares are held by the lender's third-party custodian. If the lender is financially fragile, the borrower's collateral can be caught up in problems that have nothing to do with the borrower's own creditworthiness.
A repricing market
Private credit is growing toward a projected US$5 trillion by 2029, and as it has grown, global regulators, including the Financial Stability Board, have warned about rising leverage and opacity in parts of the ecosystem. Analysis from McKinsey describes a private-credit industry navigating its first real test of credit discipline. What separates a resilient lender from a fragile one comes down to two things: how it funds itself, and what it may do with the collateral it holds.
The lender's balance sheet
This is why the lender's funding model is the first thing a borrower should examine. A financing firm that itself borrows heavily to fund its book adds a chain of obligations above the borrower: if the firm's own lenders call in their money, the firm can be forced to raise cash quickly, and the assets it holds, including client collateral, can be drawn into that process.
EquitiesFirst funds loans with its own capital and does not use leverage. Removing external funding from the equation removes the most common channel through which a lender's distress reaches a borrower's shares.
For a borrower, this turns an abstract worry into a checklist. Does the financing firm rely on borrowed money or third-party capital to fund its loans, and if so, who are its own lenders? Can the shares be lent, re-used, or shorted while they are held? Is the borrower's liability limited to the collateral, or can the firm reach further?
What the lender does with the shares
A second channel is what the lender does with the shares while it holds them. Under a sale-and-repurchase structure, title to the shares transfers to EquitiesFirst for the term, and the shares become part of the firm's proprietary portfolio, which its investment team may trade and rebalance. What EquitiesFirst does not do is short-sell the shares or lend them to third parties, the practices that would expose the collateral to short positions against the stock or to a third party's failure.
Non-recourse by design
Finally, the structure of equity-backed financing itself can limit how far risk can travel back to the borrower. EquitiesFirst's financing is non-recourse: if a borrower chooses not to repay, the firm's remedy is limited to the shares used as collateral, and it cannot pursue the borrower's other assets. That does not remove market risk - the value of the shares can rise or fall during the term, and that exposure stays with the borrower, but it caps the borrower's downside and clarifies exactly what is at stake.
How the structures compare
| Risk dimension | Non-recourse equity-backed financing (EquitiesFirst) | Margin loan / securities-backed line of credit |
| Recourse | Non-recourse: the lender's only remedy on default is the shares used as collateral | Full recourse: the lender can pursue the borrower's other assets |
| Margin calls / top-up | At a set margin threshold the borrower may post more collateral or walk away, keeping the proceeds already received | Maintenance calls; if unmet, the firm may sell the collateral, sometimes without notice |
| Use of the shares | Title transfers to the lender, which may trade the shares as part of its portfolio but does not short them or lend them to third parties | May be lent out or re-used under the account terms |
| Exposure to the lender's funding | Funded from EquitiesFirst's own capital, without leverage | Tied to the broker or bank's own funding; often demand-callable |
| Borrower's maximum loss | Limited to the shares used as collateral | Can exceed the collateral (recourse to other assets) |
Margin loan and securities-backed line of credit mechanics per FINRA and SEC/FINRA investor guidance.
Frequently asked questions
Counterparty risk is the chance that the other side of a transaction fails to meet its obligations. In equity-backed financing, the lender assesses the borrower, but the borrower is also relying on the lender to safeguard the shares and return an equivalent holding at the end of the term. Weighing the lender's funding model and how it handles the collateral is one way a borrower can measure that risk.
No financing is risk-free. In equity-backed financing, for example, the shares can fall in value, and market risk stays with the borrower throughout the term of the loan. What a non-recourse structure changes is the borrower's downside. If the borrower does not repay, the lender's only remedy is the shares used as collateral; it cannot pursue their other assets, so the most a borrower can lose is that collateral, without the forced-sale and margin-call cascade that can accompany recourse borrowing. That protection is only as sound as the lender behind it, which is why how a firm funds itself and what it may do with the shares matter alongside the non-recourse label. EquitiesFirst funds transactions with its own capital and does not short the shares or lend them to third parties.
It can, if the lender funds itself with borrowed money: a firm whose own lenders pull back can be forced to sell assets it holds to raise cash. EquitiesFirst removes that channel by funding transactions with its own capital, without leverage, so a borrower's shares are not tied to any external funding chain.
Beyond its funding model, EquitiesFirst's track record of more than two decades and its institutional risk-management processes bear on its strength as a counterparty. It funds transactions with its own capital rather than borrowed money, does not short-sell the shares or lend them to third parties, and structures its financing on a non-recourse basis so a borrower's liability is limited to the collateral. Details are set out on the firm's FAQs page.
Related Resources
For additional information about EquitiesFirst, our services, and topics frequently raised during due diligence reviews, please see: