A loan management account, or LMA, is a revolving line of credit secured by the eligible securities in your brokerage account. You borrow against your portfolio instead of selling it, drawing funds when you need them and repaying on your own schedule. Credit lines typically run from 50% to 95% of the pledged portfolio’s value depending on what you own, and the money can be used for almost anything except buying more securities.1Wells Fargo Advisors. Securities-Based Borrowing
How the Credit Line Works
An LMA behaves like a revolving credit line tied to your investments. You draw funds when you want them, repay when you want to, and the available credit replenishes as the balance comes down. There’s no fixed maturity and no required principal payments. Your monthly obligation is the accrued interest, nothing more.
Your portfolio is the collateral. Publicly traded stocks, bonds, mutual funds, ETFs, and Treasury securities are all eligible. The lender evaluates the liquidity and volatility of your holdings to set the size of the credit line. Private equity, restricted stock, real estate, and illiquid alternatives don’t qualify because the lender needs assets it can sell quickly if things go wrong.
What You Can and Can’t Use the Money For
An LMA is classified as a “non-purpose” loan under Federal Reserve Regulation U, which prohibits banks from extending credit secured by margin stock when the proceeds will be used to buy or carry additional securities.2eCFR. 12 CFR Part 221 – Credit by Banks and Persons Other Than Brokers or Dealers for the Purpose of Purchasing or Carrying Margin Stock At origination you sign a purpose statement confirming you won’t use the proceeds to buy securities. That’s the line separating an LMA from a margin loan, which exists specifically for buying more securities.
Everything else is generally on the table: real estate purchases, private business investments, tax bills, bridge financing, tuition, major personal expenditures. Borrowers often use the facility as a flexible liquidity tool that keeps their portfolio intact while covering large expenses.
Why Investors Borrow Instead of Selling
The appeal isn’t really the rate or the convenience. It’s avoiding a taxable event. When you sell appreciated stock, you owe capital gains tax on the appreciation. When you borrow against that same stock, no sale happens, no gain is realized, and no tax is due. You get liquidity while the full position stays invested.
This gets powerful with concentrated positions held for years, where unrealized gains might make up most of the value. Selling hands a big slice to taxes. Borrowing preserves the entire position and its growth potential. The strategy also extends into estate planning: under current law, heirs inherit assets at fair market value on the date of death, resetting the cost basis and effectively erasing the gains that accumulated during the owner’s lifetime.
Interest Rates, Repayment, and Fees
Rates are variable and tied to a benchmark like the Secured Overnight Financing Rate (SOFR) or the prime rate, plus a spread the lender sets based on loan size and your relationship with the firm. Bigger balances get better spreads. Interest accrues daily on whatever’s outstanding and is billed monthly.
You’re only required to pay the accrued interest each month. There’s no amortization schedule. Principal can sit outstanding indefinitely as long as you cover the interest and your collateral holds up. When you do pay down principal, there’s no prepayment penalty, and the repaid amount immediately becomes available to borrow again.
Fees are often minimal. Fidelity’s securities-backed line of credit charges no application, origination, annual, or repayment fees.3Fidelity. Securities Backed Line of Credit Not every lender is this generous, so ask about unused-line fees, annual maintenance charges, and wire costs before you sign. Some lenders also charge a small state filing fee to perfect their security interest in your account.
How Much You Can Borrow
Lenders assign each security type a loan-to-value (LTV) ratio reflecting how easily and predictably it can be sold. Riskier or less liquid, lower percentage.
Stocks, ETFs, and mutual funds typically support borrowing of up to about 70% of value. Certain Treasury securities can go above 90%.4Schwab Bank. Is a Securities-Based Line of Credit Right for You? Wells Fargo advertises a range of 50% to 95% depending on collateral type.1Wells Fargo Advisors. Securities-Based Borrowing A concentrated position in a single company gets a much lower advance rate than a diversified index fund, even at the same dollar value.
Your credit line isn’t static. It moves with the market value of your collateral. When your portfolio rises, borrowing capacity increases. When it falls, available credit shrinks, and you may face a maintenance call.
Maintenance Calls and Forced Sales
If your portfolio drops enough that the outstanding balance exceeds the allowable LTV, the lender issues a maintenance call. It’s the securities-based lending equivalent of a margin call: the collateral cushion has gotten too thin and you need to fix it.
You typically have a few options:
- Deposit cash into the linked account to bring the ratio back in line.
- Pledge additional eligible securities as collateral.
- Pay down the loan to reduce the outstanding balance.
If you don’t act quickly enough, the lender has the contractual right to sell your pledged securities without your consent. The lender picks what to sell and doesn’t have to wait for a market recovery. That’s the worst-case scenario: you lose positions at depressed prices and may generate a large capital gains tax bill on securities with low cost basis. The very event the borrow-don’t-sell strategy was designed to avoid, a taxable sale, gets forced on you at the worst possible time.
Other Risks Worth Knowing
LMAs are demand loans. The lender can call the entire balance due at any time, for any reason, not just because your collateral fell.5FINRA. Securities-Backed Lines of Credit Lenders rarely exercise this right when accounts are in good standing, but the contractual authority is there. A shift in the lender’s risk appetite or institutional policy could trigger a demand that has nothing to do with your portfolio’s performance.
Cross-default clauses are common. If you default on another obligation like a mortgage, business line of credit, or credit card, the LMA lender can declare your credit line in default too, freezing the facility or demanding repayment. Some agreements offer a cure period; others don’t. Read this language carefully before signing.
No FDIC or SIPC coverage. The borrowed funds aren’t deposits, and the credit line itself isn’t covered by SIPC. If the lender runs into financial trouble, your rights are governed entirely by the loan agreement.
Is the Interest Tax-Deductible?
It depends entirely on what you did with the money. The IRS doesn’t care that the loan is secured by securities. It cares where the proceeds went.
Under Treasury Regulation Section 1.163-8T, interest is allocated based on how you actually spent the borrowed funds, not the collateral or the loan’s label.6govinfo. 26 CFR 1.163-8T – Allocation of Interest Expense Among Expenditures (Temporary) Every draw needs a paper trail showing where it ended up.
If you trace proceeds to the purchase of investment property, such as a stake in a private fund or an income-producing real estate partnership, the interest qualifies as investment interest expense. It’s deductible, but only up to the amount of your net investment income for the year; any excess carries forward.7Office of the Law Revision Counsel. 26 USC 163 – Interest You claim it on IRS Form 4952.8Internal Revenue Service. About Form 4952 – Investment Interest Expense Deduction
If you use the proceeds for personal spending like vacations, tuition, or consumer purchases, the interest is personal interest and isn’t deductible.7Office of the Law Revision Counsel. 26 USC 163 – Interest Limited exceptions exist for qualified residence debt and, for tax years 2025 through 2028, certain vehicle loan interest, but neither applies to a typical LMA draw used for personal expenses.
Recordkeeping isn’t optional. If the IRS audits and you can’t trace a specific draw to a deductible expenditure, the interest defaults to non-deductible personal interest. Borrowers who mix uses in the same year have the most complex tracking, since each draw is allocated separately based on where it went. Your lender’s year-end statement shows the total interest paid; classifying it correctly across deductible and non-deductible categories is on you.
Who Qualifies and How Setup Works
LMAs are designed for investors with meaningful liquid portfolios. Minimums vary. Schwab’s Pledged Asset Line requires at least $100,000 in loan value of collateral in the pledged account.9Schwab Bank. Pledged Asset Line Frequently Asked Questions Wells Fargo’s Priority Credit Line has a minimum initial borrowing power of $75,000.1Wells Fargo Advisors. Securities-Based Borrowing Some firms set higher thresholds, particularly in private wealth management programs.
The lender reviews your credit history and financial picture along with the collateral quality. Once approved, the credit line is linked to your brokerage account. The pledged account typically loses certain features: margin capability, check-writing or debit card privileges, and some options-trading strategies may be restricted.9Schwab Bank. Pledged Asset Line Frequently Asked Questions You can still buy and sell securities in the account, but layering margin or payment features would conflict with the lender’s security interest.
Accessing funds after setup is straightforward. Most lenders offer electronic transfers to an external bank account, and some provide wire transfers. Draws can usually be initiated online or by phone, and funds often arrive within a business day or two.