What is a Lombard loan? A primer.

A Lombard loan is a loan secured by a pledge of liquid financial assets — most commonly listed shares or a diversified securities portfolio. The borrower pledges the assets as collateral, draws cash against a fraction of their market value, retains ownership throughout, and recovers the collateral in full on repayment. The name is old; the instrument is a mainstay of modern private banking.

Where the name comes from

The Lombard loan takes its name from the Lombards — the merchant-bankers of medieval northern Italy, and of Lombardy in particular, who dominated European moneylending by advancing credit against pledged goods and valuables. Their practice of lending against a pledge, and their name, endured: London's Lombard Street is named for them, and European private banks still call a loan secured by pledged securities a "Lombard" facility. The full history is set out in the firm's note on why it is called Lombard lending.

How the instrument works

The mechanics are consistent across markets. The borrower pledges a defined pool of securities to a custodian under a security agreement. Against that pledge, the lender advances cash equal to a percentage of the pool's market value — the loan-to-value. The borrower pays interest on the drawn amount for the term of the facility, and the pledged assets remain the borrower's property throughout. When the loan is repaid, the pledge is released and the borrower's control over the assets is unencumbered once more.

Because the assets are not sold, three things follow. The borrower keeps the economic exposure to the underlying holdings and their potential upside. The borrower keeps the dividends and voting rights, subject to how the facility is structured. And the disposal that a sale would represent, with its tax consequences, does not occur while the position is held.

What can be pledged

Eligible collateral is liquid, listed, and readily valued: shares quoted on the principal global exchanges, government and investment-grade bonds, selected funds, and diversified portfolios built from these. Quality and liquidity govern how much can be borrowed. A broad, liquid book of large-capitalisation shares supports a higher advance than a single, thinly traded holding, because the lender can value and, if necessary, realise the collateral with far greater confidence. Cash and near-cash instruments strengthen a pledge further.

Lombard loan, securities-backed lending, share-backed loan

These are three names for one instrument. "Lombard loan" is the private-banking term, most common in Switzerland and continental Europe. "Securities-backed lending", often abbreviated to SBL, is the term favoured in institutional and US markets. "Share-backed loan" is a plainer description used more loosely. In each case the borrower pledges liquid securities, borrows against a fraction of their value, and keeps ownership. It is worth distinguishing a Lombard loan from a brokerage margin loan, which is a standardised, open-ended account facility, and from securities lending, which is the quite different business of lending shares out to another party.

Where it sits in private wealth

A Lombard loan is a liquidity tool, not a leverage strategy. It is used by founders and executives with concentrated stakes, by controlling shareholders, by family offices, and by private clients who want cash without selling. Typical purposes include funding an investment or acquisition, bridging a liquidity event, diversifying around a concentrated holding, meeting a tax liability or a capital call, or simply managing timing. Used well, it turns an illiquid but valuable portfolio into working capital while leaving the portfolio intact. Discipline is what makes it work: the right loan-to-value, the right recourse, and clean custody. A fuller treatment of the instrument sits on the firm's guide to what a Lombard loan is.