Borrow without selling your holdings: how Lombard loans work, when they trigger margin calls and how to use them safely.
Key takeaways
- A Lombard loan is a loan secured by your securities portfolio: you borrow without selling your holdings.
- How much you can borrow depends on the advance rate for each asset (higher for diversified ETFs, lower for single stocks or crypto).
- The main risk is the margin call: if the portfolio falls too far, you must add collateral or repay, or the lender sells at the worst moment.
- A Lombard loan avoids triggering capital gains tax and keeps you invested, but costs interest and amplifies gains and losses.
- Used with a wide safety buffer (well below the limit), it's a cash management tool. Used to the maximum, it's leverage.
Lombard loans: the 2-minute refresher
A Lombard loan is a loan secured by your securities portfolio. The bank or broker lends you part of its value, your assets stay invested, and they serve as collateral for as long as the loan runs.
| Term | Definition | Example |
|---|---|---|
| Pledge | Using your securities as collateral for the lender | Your ETF portfolio secures the loan |
| Advance rate (LTV) | Share of an asset's value the lender agrees to lend | 70% on a world ETF |
| Credit limit | Maximum you can borrow, sum of values × advance rates | €100,000 × 70% = €70,000 |
| Credit used | Share of the limit already drawn | 40,000 / 70,000 = 57% |
| Margin call | Request to top up when the loan exceeds the limit | The portfolio falls, so does the limit |
| Forced liquidation | Sale of securities by the lender if the call is not met | ETFs sold to reduce the loan |
| Interest rate | Annual cost of the amount borrowed | 5% a year on €40,000 = €2,000 |
How your borrowing capacity is calculated
Each asset is given an advance rate that reflects its volatility and liquidity. The faster an asset can fall, the less the lender is willing to lend against it.
| Asset type | Indicative advance rate |
|---|---|
| Cash, money market funds | 90 to 95% |
| Rated government bonds | 80 to 90% |
| Diversified equity ETFs | 60 to 75% |
| Large caps | 50 to 70% |
| Small caps | 0 to 30% |
| Crypto | 0 to 50% depending on the asset |
Take a €100,000 portfolio made up of €60,000 in a world ETF (70% advance rate) and €40,000 in individual stocks (55% advance rate).
- Limit on the ETFs: 60,000 × 70% = €42,000
- Limit on the stocks: 40,000 × 55% = €22,000
- Total credit limit: €64,000
You can borrow up to €64,000, but that does not mean you should. A credit limit is not a target, it is a ceiling.
The margin call: where everything is decided
The credit limit moves with the market. If your portfolio falls, the limit falls too, while the amount borrowed stays the same. When the loan exceeds the limit, the lender issues a margin call.
Take a €100,000 portfolio in a world ETF, with a 70% advance rate. The limit is €70,000. At what fall does the margin call arrive, depending on the amount borrowed?
| Amount borrowed | Credit used | Portfolio value at threshold | Fall you can absorb |
|---|---|---|---|
| €20,000 | 29% | €28,571 | -71% |
| €40,000 | 57% | €57,143 | -43% |
| €60,000 | 86% | €85,714 | -14% |
| €70,000 | 100% | €100,000 | 0% |
Calculation: value at threshold = amount borrowed / advance rate. Simplified examples, excluding interest.
With €20,000 borrowed, it would take a 71% fall to trigger a margin call — a scenario more severe than 2008 for most diversified indices. With €60,000, a simple 14% correction is enough.
Faced with a margin call, you have three options: add cash, pledge other securities, or sell part of the portfolio. If nothing is done within the deadline, the lender sells on your behalf, at whatever the price is at that moment.
It is not the fall that ruins the borrower, it is being forced to sell during the fall.
What a Lombard loan costs
The main cost is interest, usually variable and indexed to a reference rate (Euribor, ECB rates) plus a margin. Interest only runs on the amount actually drawn, not on the limit.
Example: you borrow €40,000 for 18 months at 5% a year.
- Annual interest: 40,000 × 5% = €2,000
- Cost over 18 months: €3,000
For the operation to pay off while the money stays invested, the portfolio must therefore return more than the loan rate. If you borrow at 5% to keep a portfolio that returns 7% a year on average, the gap works in your favour. If it returns only 3%, it works against you.
A Lombard loan pays off when your assets earn more than they cost to keep.
The same need, two ways to fund it
You have a €100,000 portfolio, bought for €60,000. You need €40,000 for a property deposit. You have two options.
| Sell €40,000 of securities | Borrow €40,000 via Lombard | |
|---|---|---|
| Capital gain realised | €16,000 | €0 |
| Immediate tax (flat tax of about 30%) | about €4,800 | €0 |
| Portfolio still invested | €60,000 | €100,000 |
| Cost over 18 months | €0 interest | about €3,000 interest |
| Margin call risk | None | Yes, from about -43% |
| If the market rises 10% | +€6,000 | +€10,000 |
| If the market falls 20% | -€12,000 | -€20,000 |
Simplified examples, excluding fees. Capital gain calculation: 40% unrealised gain on €40,000 sold. Example based on French taxation; tax treatment depends on your country, account type and personal situation.
Selling is the simplest solution with no margin risk. The Lombard loan keeps your exposure intact and defers tax, but it also amplifies losses.
Real-world case: March 2020
On 19 February 2020, the CAC 40 closed at around 6,100 points. By 16 March, it had fallen below 3,900 points, a drop of about 39% in less than a month. The S&P 500 lost about 34% between its 19 February peak and its 23 March low.
An investor with €100,000 of equity ETFs and €60,000 borrowed (86% of credit used) would have received a margin call by late February, after a 14% fall. Without cash available, their holdings would have been sold in the middle of the crash. An investor with €20,000 borrowed would never have been troubled, and would have benefited from the rebound: the S&P 500 was back at its pre-crisis level by August 2020.
Two lessons
- The level of borrowing matters more than the choice of assets: both investors held the same portfolio.
- A 30 to 40% fall in equities happens roughly once a decade. A safety buffer must be able to absorb it.
Advantages of a Lombard loan
- No forced sale of your investments: you keep your holdings and their upside.
- No tax triggered: borrowing is not selling, no capital gain is realised.
- Speed: no income assessment as for a mortgage, the collateral is the portfolio.
- Flexibility: you draw on the limit when you need it and repay when you want.
- Interest on the amount drawn: an available but unused limit costs nothing, depending on the lender's terms.
Drawbacks and risks
- Margin call: a market fall can force you to repay or sell at the worst moment.
- Variable rate: if rates rise, the cost of the loan increases.
- Leverage: reinvesting the borrowed amount amplifies gains and losses alike.
- Concentration: a poorly diversified portfolio gets a low advance rate and a risk of sharp falls.
- Opportunity cost: if the portfolio earns less than the loan rate, the operation makes you poorer.
- Revisable advance rates: the lender can cut an asset's advance rate during periods of stress.
Lombard loan, consumer loan, selling securities
| Lombard loan | Consumer loan | Selling securities | |
|---|---|---|---|
| Collateral | Your portfolio | Your income | None |
| Time to obtain | Immediate or a few days | A few days to weeks | Immediate |
| Tax triggered | No | No | Yes, on the capital gain |
| Cost | Interest, often variable | Fixed interest, often higher | No interest |
| Main risk | Margin call | Debt burden | Being out of the market |
Why investors choose Neverless
A real-time credit used gauge: you can see at any time how much of your limit is drawn and how far you are from a margin call.
A wide range of assets as collateral: stocks, ETFs, crypto, gold and silver in a single account.
A regulated framework: Neverless is licensed under MiCA and MiFID II.
No commission on orders: when you rebalance or reduce a position, you add no brokerage fees.
No platform removes the risk of a margin call. What Neverless does is make it visible before it happens.
FAQ: Lombard loans
What is a Lombard loan?
It is a loan secured by a securities portfolio. You borrow part of the value of your assets without selling them, and they serve as collateral for the lender for the whole duration of the loan.
How much can you borrow with a Lombard loan?
It depends on each asset's advance rate. As a guide, 60 to 75% of the value for a diversified ETF, less for a single stock or a crypto asset. The sum of these amounts forms your credit limit.
What happens in a margin call?
The lender asks you to bring your account back into line, by adding cash, pledging other securities or selling part of the portfolio. If you do not act within the deadline, the lender sells the necessary securities itself.
Are Lombard loans only for the very wealthy?
Historically, private banks offered them from several hundred thousand euros. Some online brokers now open them to smaller portfolios, with an automated process.
Do you pay tax on borrowed money?
No, a loan is not income and does not trigger capital gains tax. Tax remains due the day you sell your securities. Your personal tax situation may nonetheless have specific features.
Can you use a Lombard loan in Europe?
Yes, pledging securities accounts is common across Europe and regulated by national law. Terms and eligible accounts vary by country and account type.
How much of your limit should you use?
There is no single rule. The lower the credit used, the larger the fall you can absorb. Staying below half of your limit generally lets you weather a sharp correction without a margin call.
Sources
- Euronext, CAC 40 index: https://live.euronext.com/fr/product/indices/FR0003500008-XPAR
- S&P Dow Jones Indices, S&P 500: https://www.spglobal.com/spdji/en/indices/equity/sp-500/
- Légifrance, French Monetary and Financial Code, article L211-20: https://www.legifrance.gouv.fr/codes/id/LEGIARTI000044072836/2022-01-01
- European Central Bank, key interest rates: https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html
- French tax authority, taxation of capital gains on securities: https://www.impots.gouv.fr/particulier/questions/jai-realise-une-plus-value-mobiliere-comment-est-elle-imposee
- AMF, leverage: https://www.amf-france.org/fr/effet-de-levier
- Neverless: calculations and examples in this article / legal notices
A Lombard loan carries a risk of capital loss and forced sale of your securities if markets fall. This article is educational and does not constitute investment advice.