Stock Loan Term Sheet Explained: Key Terms and the Documents a Lender Needs.
A stock loan term sheet sets out the pledged shares, loan amount and loan-to-value, currency, tenor, reference rate and spread, margin-call and liquidation triggers, recourse, events of default and conditions precedent. The lender confirms the documents it needs during the indicative-terms stage; on the firm’s process, indicative terms typically follow within one to two business days of an enquiry.
A term sheet is the first written version of a stock loan. It summarises the commercial terms that the loan agreement and security documents later set out in full. This guide takes each standard heading in turn: what it does, and what to check before agreeing it.
What is a stock loan term sheet?
It is a summary of a proposed loan against listed shares: what is pledged, how much is lent, for how long and at what price, and what happens if the shares fall. On the firm’s process, indicative terms (a preliminary structure) are typically issued within one to two business days of an enquiry.
That indicative term sheet is “a starting point for refinement, not a published rate card”. The terms are then formalised in the loan and security documents, while regulatory, tax and disclosure points are addressed in parallel by counsel of the borrower’s choosing.
Which terms are in a stock loan term sheet, and what should you check?
| Term | What it sets | What to look for |
|---|---|---|
| Collateral | The collateral: the issuer, share class, number of shares and listing to be pledged. | Whether the lender can call for more shares or accept substitutes, and any restriction on the shares, such as a lock-up (see borrowing against restricted stock). |
| Loan amount and LTV | The cash advanced, stated as an amount, as a loan-to-value (LTV) at drawdown, or both: for example “[x]% of the market value of the pledged shares”. | Which price and date set the market value, and whether the amount is fixed or a maximum. The firm publishes no LTV band: the ratio is set per position after review (see Loan-to-Value Calibration). |
| Currency | The currency the loan is advanced and repaid in, which can differ from that of the shares (a cross-currency loan). | How exchange-rate moves feed the LTV and the triggers, and whether a hedge is required (see Cross-Currency Stock Loans). |
| Tenor | The term of the loan (its tenor) and the maturity date. Loans the firm arranges typically run 12 to 36 months. | Any extension option and its conditions, and what happens if the loan is not repaid or refinanced at maturity. |
| Reference rate and spread | Interest as a benchmark for the loan currency plus a spread, for example “SOFR plus [x]% a year”. The firm publishes no rate card. | The benchmark and interest period, how often the rate resets, whether interest is paid periodically or accrued to maturity, the fallback if the benchmark stops, and any zero floor. |
| Fees | Any one-off arrangement or structuring fee, plus third-party costs such as custody and the borrower’s own counsel (see interest rates and costs). | Whether fees are deducted from the advance, who bears costs if the loan does not close, and any fee on prepayment or extension. |
| Margin call trigger | The LTV at which the lender can call for coverage to be restored (a margin call), for example “if the LTV exceeds [x]%”. | The headroom between the opening LTV and the trigger, how often the LTV is tested, and on which price (see Margin Call Mechanics). |
| Cure period | The time allowed to meet a margin call, for example “[n] business days after notice”. | When the clock starts, how notice is given, and how weekends and market holidays count. |
| Top-ups | How a call is cured: pledging more shares or other agreed collateral, prepaying part of the loan, or a mix of the two. | Which assets count as top-up collateral, and whether surplus shares are released if the price rises. |
| Liquidation trigger | A higher LTV at which the lender may sell the pledged shares (a liquidation trigger), for example “if the LTV exceeds [y]%”. | Whether it can apply before the cure period ends, how the sale is run, and how the proceeds are applied. |
| Recourse | How far the borrower is liable beyond the shares: non-recourse, limited-recourse or full-recourse. | Who bears any shortfall after enforcement, and how the choice moves the LTV and the margin terms (see Non-Recourse Stock Loans). |
| Dividends and voting | Who receives dividends and who votes the pledged shares during the loan. | In the firm’s default structure, dividends pass to the borrower and voting typically stays with the borrower. Check how rights issues and takeovers are treated (see Dividends and Corporate Actions). |
| Prepayment | The borrower’s right to repay early, and any events that require early repayment. | Notice, minimum amounts, any break or prepayment cost, and whether shares are released as the loan is repaid. |
| Events of default | The events that let the lender demand repayment and enforce: for example non-payment, an uncured margin call, insolvency, a trading suspension or delisting, or a change of control. | Grace periods, how long a suspension must last before it counts, and whose change of control is meant: the issuer’s or the borrowing vehicle’s. |
| Custody and pledge mechanics | Where the shares are held, in whose name, and how the security is taken: pledge, charge or title transfer (see Pledge vs Share Charge vs Title Transfer). | On the firm’s process, shares are held at a qualified custodian under bankruptcy-remote arrangements. Check who may instruct the custodian and whether the lender may rehypothecate the shares. |
| Governing law | The law that governs the loan agreement and each security document, and where disputes are decided. | Whether the security follows a different law from the loan, such as that of the market where the shares are held. |
| Conditions precedent | What must be delivered or confirmed before the lender is obliged to fund. | Which conditions depend on third parties, such as a custodian, and any that may be met after funding (conditions subsequent). |
A general guide to standard term-sheet headings, checked against the linked sources on 27 October 2026. Bracketed figures ([x], [y], [n]) are placeholders, not quotes: the firm publishes no rate card and no loan-to-value band.
How is interest written in a stock loan term sheet?
As a reference rate plus a spread: a public benchmark in the loan currency, and a margin set for the position, as described in Lombard Loan Interest Rates and Costs. The term sheet names the benchmark, and its administrator’s own page shows how it is defined and published.
SOFR, a broad measure of the cost of borrowing cash overnight against US Treasury securities, is published each business day by the Federal Reserve Bank of New York. SONIA, an average of the rates banks pay to borrow sterling overnight, is administered by the Bank of England.
Because both are overnight rates, check how the term sheet turns them into a rate for each interest period. Both administrators also publish compounded measures: the SOFR Averages and Index and the SONIA Compounded Index.
EURIBOR, administered by the European Money Markets Institute, covers five maturities from one week to twelve months. With EURIBOR, check which maturity applies and which day’s publication sets the rate.
Why are trading suspension and change of control events of default?
Both can change what the lender relies on without any missed payment. While trading in the shares is suspended, there is no live price on the exchange and no way to sell there, so the lender can neither test the LTV nor enforce in the ordinary way.
A change of control of the issuer, such as a takeover, can turn the pledged shares into cash or into the acquirer’s shares; Dividends and Corporate Actions covers each outcome. Where the borrower is a holding company, a change in who controls it alters the credit the lender approved.
The definitions decide how these events bite: how long a suspension must last, whether a delisting counts, and whether the result is default, mandatory prepayment or a duty to substitute collateral.
Which regulatory points can a stock loan term sheet raise?
Does a loan against US-listed shares need a purpose statement?
It can. Where a bank subject to Regulation U lends more than USD 100,000 against margin stock, 12 CFR 221.3(c) requires the borrower to sign a purpose statement on Form FR U-1. A non-bank lender subject to the rule’s registration requirements uses Form FR G-3.
Margin stock includes any equity security registered on a national securities exchange (12 CFR 221.2), and the SEC’s list of registered exchanges includes the NYSE and Nasdaq. The purpose and non-purpose distinction, and when Regulation X reaches the borrower, are explained in Regulation U and X: Pledging US-Listed Shares.
Does a director have to notify the pledge?
In the EU and the UK, usually yes, once the director’s transactions in a calendar year reach the notification threshold. Article 19(7) of the Market Abuse Regulation lists “the pledging or lending of financial instruments” by a person discharging managerial responsibilities among the transactions to notify, and the UK version keeps that wording.
Thresholds, deadlines and closed periods are set out in Director Share Pledges Under MAR Article 19. Disclosure duties for substantial shareholders, which differ by market, are covered in Share Pledge Disclosure Rules by Market, and pledges by company executives in Executives Pledging Company Stock.
What documents will the lender need?
It depends on the lender. The firm acts as introducer and arranger, and each lender confirms its own documentation and due-diligence requirements during the indicative-terms stage. The enquiry itself covers high-level details of the position and the financing requirement; material non-public information is not requested at that stage.
Some requirements come from law rather than the lender’s choice. In the UK, for example, a lender within the scope of the Money Laundering Regulations 2017 must apply customer due diligence when it establishes a business relationship.
Under regulation 28, that means identifying and verifying the customer, identifying any beneficial owner and taking reasonable measures to verify their identity, and assessing the purpose and intended nature of the relationship.
Within the term sheet, the conditions precedent show what must be delivered before funding, and the loan agreement carries the full list. Regulatory forms, such as a purpose statement where Regulation U requires one, sit alongside the lender’s own requirements.
General information only, not legal or tax advice: take local advice before acting.
Which markets does this apply to?
United States stock loans · United Kingdom stock loans
How the loan itself works is set out in the main guide: securities-based lending: how securities-backed loans work.
Keep reading.
Share Margin Financing vs Stock Loans in Asia
Share margin financing vs stock loans in Hong Kong, Singapore and Malaysia: broker limits, Singapore’s 110% margin floor and when a stock loan fits better.
Read →Share Pledge, Share Charge or Title Transfer
Share pledge, charge or title transfer? With a pledge or charge the borrower keeps ownership; under EU law, title transfer passes full ownership to the lender.
Read →T+1 Settlement in Europe: What Changes for Stock Loans
The EU, UK and Switzerland are due to move to T+1 settlement on 11 October 2027. What changes for stock loans: margin-call sales, enforcement, FX, dividends.
Read →Stock loan term sheets: frequently asked questions.
Q · 01
Is a stock loan term sheet binding?
An indicative term sheet is a proposal rather than the loan itself: the terms take effect through the signed loan and security documents.
On the firm’s process, the indicative term sheet is “a starting point for refinement, not a published rate card”. If a term sheet says that particular clauses, such as confidentiality or costs, apply once it is signed, counsel should confirm what they commit the borrower to.
Q · 02
What is the difference between a term sheet and a loan agreement?
The term sheet summarises the commercial terms; the loan agreement and security documents set them out in full and are what the parties sign.
The full documents add the definitions, representations, undertakings, notice mechanics and the complete events of default. Before signing, check that each point agreed in the term sheet appears in them unchanged.
Q · 03
Can the terms change after the indicative term sheet is issued?
Yes: indicative terms are a preliminary structure, refined before the documents are signed.
The process describes the indicative term sheet as a starting point for refinement; the terms that apply are those formalised in the documentation. Where the loan amount is expressed as a loan-to-value, the cash figure also moves with the share price until drawdown.
Q · 04
Which reference rate applies to a loan in dollars, sterling or euros?
The term sheet names a benchmark for the loan currency, such as SOFR for US dollars, SONIA for sterling or EURIBOR for euros.
SOFR is published by the Federal Reserve Bank of New York, SONIA is administered by the Bank of England, and EURIBOR is administered by the European Money Markets Institute. Interest is the benchmark plus a spread set for the position, and the firm publishes no rate card.
Q · 05
What is a condition precedent in a stock loan?
A condition precedent is something that must be delivered or confirmed before the lender is obliged to advance the loan.
The term sheet summarises the conditions precedent and the loan agreement lists them in full. Check which depend on third parties, such as a custodian, and whether any may be met after funding as conditions subsequent.
A specific position to discuss?
Submit a confidential enquiry. A senior principal will respond within one business day.