How loan-to-value is set.
The variables behind the advance rate — liquidity, volatility, size, concentration, and recourse — and why it is calibrated per portfolio, not read off a rate card.
Loan-to-value (LTV) on a Lombard loan is the percentage of a pledged portfolio’s market value that a lender will advance as cash. It is not read off a rate card; it is calibrated to the specific collateral. Five variables drive it: liquidity and free float, volatility, position size relative to trading volume, single-name concentration, and the recourse profile.
- LTV is the advance rate: cash advanced as a percentage of the pledged collateral's market value.
- It is set per portfolio, not per asset class, and never from a published rate card.
- A diversified, liquid, large-cap book supports a higher LTV than a single, concentrated, illiquid holding.
- Illustratively, LTVs range from roughly 20% to 65%, but any figure follows a review of the actual holdings.
- A more protective recourse profile, such as limited or non-recourse, typically lowers the LTV.
What loan-to-value means
The loan-to-value is the single most important number in a Lombard loan. If a portfolio is worth ten and the lender advances five, the LTV is fifty per cent. The gap between the loan and the collateral value is the lender's buffer against a fall in the market before the loan is repaid or cured. Setting the LTV is therefore an exercise in judging how far, and how fast, the collateral could fall, and how readily it could be sold if it had to be. Everything that follows is a way of answering those two questions.
Liquidity and free float
Liquidity is how readily the collateral can be valued and sold without moving its price. A share with deep daily turnover and a large free float can be realised close to its quoted value; a thinly traded one cannot. The more liquid the collateral, the more confident the lender is in both the mark and the exit, and the higher the LTV it will support. Free float — the portion of a company's shares actually available to trade — matters because a large nominal market capitalisation can conceal a small tradable float.
Volatility
Volatility measures how far the collateral's value can move over the life of the facility. The more volatile the collateral, the larger the buffer the lender needs, and the lower the LTV. A stable, large-capitalisation index constituent moves within a narrower band than a single growth stock, and is lent against more generously. Volatility is assessed on the specific holdings, not on the asset class in the abstract.
Position size relative to trading volume
A holding that is small relative to a stock's average daily volume can be sold in a day; one that represents many days of volume cannot. The larger the position against normal turnover, the harder it is to exit without depressing the price, and the more conservative the LTV. This is why two holders of the same stock can be offered different terms: the size of the stake, not just its identity, shapes the advance.
Concentration
A single name concentrates idiosyncratic risk — the risk specific to one company — that a diversified portfolio spreads across many. A book of thirty liquid holdings can absorb a shock to any one of them; a single position cannot. Concentration therefore lowers the LTV, and a diversified portfolio is lent against more generously than the sum of its parts would suggest.
Recourse
Recourse determines what the lender can pursue if the collateral proves insufficient. Under full recourse the borrower stands behind the loan, so the lender can set a higher, less conservative LTV. Under non-recourse the lender's only remedy is the collateral, so it leans entirely on the pledge and sets a lower LTV with a wider buffer. Limited recourse sits between the two. The recourse profile is chosen with the borrower and priced accordingly.
Illustrative ranges
The bands below are illustrative only. They show how the variables above tend to combine, not what any particular position would be offered.
| Collateral profile | Indicative LTV band |
|---|---|
| Diversified large-cap portfolio | Toward the upper end (roughly 55–65%) |
| Single liquid large-cap holding | Mid-to-upper (roughly 45–60%) |
| Concentrated mid-cap position | Lower-to-mid (roughly 30–45%) |
| Illiquid, small-cap, or restricted stock | Lower end or case by case (roughly 20–35%) |
No LTV is fixed until the specific holdings have been reviewed, and the bands are not an offer. For a transparent first estimate, the firm publishes an indicative LTV calculator, and a fuller treatment sits on how much you can borrow against shares.
How LTV changes over the life of a loan
The LTV set at inception is not static. The collateral is valued regularly, so if its market value falls, the ratio rises toward the agreed threshold. Reach the threshold and a defined cure applies: pledging additional collateral or repaying part of the loan restores the buffer. Corporate actions such as rights issues, and currency movements where the loan and the collateral are in different currencies, can also shift the ratio. Managing the LTV through the life of the facility is part of the discipline, not an afterthought.
Read next.
Borrowing against a concentrated position
Why one large single-stock holding attracts a more conservative loan-to-value.
Read →Lombard loan vs margin loan
How the advance rate and the monitoring differ between the two facilities.
Read →The Lombard loan guide
The main guide to the instrument: mechanics, LTV, recourse, tenor, and costs.
Read →Want an indicative loan-to-value for a specific position?
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