Securities Backed Lending (SBL) is a powerful tool. It allows wealthy clients to release liquidity against investment portfolios while continuing to benefit from growth and dividends. Used strategically, it can unlock the flexibility to purchase prime property, cover deposits, or fund business ventures without triggering taxable disposals.

But like all financial tools, SBL carries risks. In 2025, with global markets shaped by inflation, currency volatility, and geopolitical uncertainty, understanding those risks has never been more important. Market downturns can impact portfolio values, trigger lender action, and — if not managed carefully — lead to liquidity pressures that undermine the very strategy the facility was designed to support.

This blog explores the risks of securities backed lending in detail, from market volatility and margin calls to eligibility challenges and repayment pressures. More importantly, it outlines practical strategies that clients and advisers can use to mitigate those risks while still benefiting from the advantages of SBL.

The Nature of Risk in Securities Backed Lending

The appeal of SBL lies in its simplicity: pledge a portfolio, release liquidity, and continue to benefit from long-term investment exposure. However, that very simplicity hides a structural vulnerability: the facility is only as secure as the portfolio it is backed against.

If markets remain stable or grow, the facility is low-risk and cost-effective. But if asset values decline, lenders can demand corrective action. This may involve posting additional collateral, making partial repayments, or in extreme cases, facing forced liquidation of securities. Unlike mortgages secured on property — where values fluctuate more slowly — investment portfolios can move sharply, creating sudden risks.

Market Volatility: The Central Challenge

The first and most obvious risk is market volatility. Securities are not fixed assets; their values change daily, sometimes significantly.

Consider an investor who pledges a £10 million portfolio against which they borrow £6 million at 60% loan-to-value. If equity markets fall by 20%, the portfolio value drops to £8 million. The loan, however, remains at £6 million. The effective loan-to-value is now 75%, breaching the lender’s agreed threshold.

At this point, the lender is entitled to issue a margin call, requiring the client to top up collateral or reduce the loan. If the borrower cannot respond quickly, the lender may liquidate assets to restore balance — often at depressed values.

This risk is particularly relevant in 2025, when global markets are still adjusting to shifting interest rate policies and currency realignments. Borrowers must recognise that while SBL preserves long-term investment exposure, it also exposes them to short-term fluctuations.

Margin Calls: How They Work

A margin call is the mechanism lenders use to protect themselves against portfolio decline. When asset values fall below agreed thresholds, the lender demands corrective action.

In practice, this means the borrower must either:

• Deposit more securities into the pledged portfolio, or
• Make partial cash repayments to reduce the loan.

If neither is possible, the lender may liquidate part of the portfolio. While this restores the loan-to-value ratio, it is rarely in the client’s best interest. Forced sales can crystallise losses and trigger tax liabilities.

Margin calls are the most significant risk in SBL, particularly for clients who use the facility aggressively. A prudent borrower ensures they have additional liquidity buffers elsewhere, ready to deploy in the event of a call.

Concentration and Eligibility Risks

Not all securities are equal in the eyes of lenders. Portfolios heavily concentrated in a single asset or sector may be deemed higher risk. Volatile securities, emerging market equities, or private funds may be excluded entirely.

This creates two risks. The first is that clients expecting high loan-to-value may find facilities capped at lower levels. The second is that if the “eligible” portion of the portfolio declines disproportionately, the facility may become more vulnerable to margin calls.

For example, a borrower with a technology-heavy portfolio may secure an SBL facility in buoyant markets, only to face aggressive collateral calls if the sector corrects. In contrast, portfolios diversified with bonds or blue-chip equities tend to support more stable lending.

Short-Term Nature and Repayment Pressures

Most securities backed loans are short- to medium-term facilities, typically lasting one to three years. This creates another layer of risk: repayment or refinancing pressure at maturity.

If markets have declined, refinancing may be more difficult or more expensive. If the client intended to repay from another transaction — such as a property sale or business exit — delays in those events can create liquidity strain.

For this reason, SBL should never be treated as open-ended liquidity. It works best when part of a carefully structured plan, often bridging to long-term solutions such as large mortgage loans, development finance, or portfolio mortgages.

Currency and Cross-Border Risks

Cross-border lending introduces additional challenges. Borrowers may pledge assets in dollars or euros while drawing loans in sterling. This can reduce immediate FX risk for a property purchase but creates exposure if exchange rates move during the life of the loan.

A client who borrows £5 million against a dollar portfolio at £1.25/$ may find their effective borrowing cost changes dramatically if sterling strengthens to £1.40/$. Such moves can make repayment more expensive and undermine the facility’s efficiency.

This is why many international buyers now view SBL as complementary to other solutions, such as international property finance, rather than a standalone answer.

Strategies to Protect Yourself

Understanding the risks is only half the battle. The most successful clients are those who build protections into their strategy from the outset.

Diversification is essential. A broad mix of equities, bonds, and funds supports more stable lending than concentrated or volatile portfolios. This reduces the likelihood of sharp margin calls.

Liquidity buffers are equally important. Clients should maintain accessible cash or near-cash reserves, separate from the pledged portfolio, to meet margin calls without forced sales.

Conservative loan-to-value ratios provide another safeguard. While lenders may offer up to 70%, many sophisticated clients choose to borrow less — 50% or below — to withstand volatility.

Finally, alignment with broader finance ensures that SBL fits into a coherent plan. Facilities should ideally be temporary, bridging to long-term solutions such as interest-only mortgages or refinancing once transactions complete.

A Real-World Example

A UK-based entrepreneur holds a £12 million global portfolio. They wish to purchase a £7 million London property and arrange a £5 million SBL facility at 60% LTV.

Six months later, equity markets fall by 15%, reducing the portfolio’s value to £10.2 million. The loan-to-value rises to 72%, breaching the lender’s covenant. A margin call is issued, requiring a £600,000 top-up.

Fortunately, the client has maintained a £1 million liquidity reserve, which is used to meet the call. This prevents forced sales and keeps the facility intact. A year later, markets recover, and the property is refinanced into a long-term mortgage, allowing the SBL to be repaid.

This scenario demonstrates both the risks and the protections available. Without the liquidity reserve, the client might have been forced to sell assets at a loss. With planning, the facility worked exactly as intended.

How Willow Can Help

At Willow Private Finance, we structure securities backed lending with risk management in mind. We work closely with private banks, investment banks, and specialist lenders to secure terms that reflect both opportunity and protection.

Our role is not just to source facilities, but to ensure they integrate into broader wealth and property strategies. This means advising on loan-to-value ratios, portfolio eligibility, and repayment planning.

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