Loan Against Shares - How to Borrow Against a Private Company

Companies are staying private for significantly longer, often 10+ years or more before an exit, compared to previous decades. As a result, substantial wealth is increasingly tied up in private companies, valuable on paper, but not easily accessible.

For many founders, executives, and early investors, this creates a common challenge: how to access liquidity without selling shares or diluting ownership. A loan against shares can provide a solution, allowing individuals to access capital through lending against private company shares while retaining full exposure to future growth. As a form of equity-backed lending, it enables borrowing against private company shares in a way that can balance liquidity needs with long-term strategic ownership.

What Is a Loan Against Shares?

A loan against shares is a form of equity-backed lending that allows individuals to borrow money using their shareholding as collateral. Instead of selling equity to generate cash, borrowers can access liquidity while retaining ownership and future upside.

Often referred to as share-backed lending, this structure enables borrowing against private company shares or publicly listed equities, depending on the nature of the holding. The key difference lies in how the shares are valued and underwritten.

For public shares, pricing is transparent and continuously updated, making them easier for lenders to assess and monitor. As a result, lending against listed equities is typically more straightforward, with oftenhigher loan-to-value ratios and more standardised terms.

In contrast, lending against private company shares is more complex. Valuations are often less frequent, liquidity is limited, and lenders must rely on detailed company-level analysis. This is where private credit lending plays a key role, focusing on the intrinsic value of the business rather than market pricing.

In summary, a loan against shares provides a way to access liquidity against private shares or listed investments without disrupting long-term ownership, but the structure and risk profile differ significantly depending on the type of equity involved.

Why Borrow Against Private Company Shares?

For many shareholders, the challenge is not creating value, it’s accessing it. When wealth is concentrated in a single private company, traditional options often involve selling equity, which can be restrictive, time-consuming, and strategically undesirable. This is where borrowing against private company shares becomes a powerful alternative.

Liquidity without selling
A loan against shares allows borrowers to access capital without disposing of their stake. This means accessing liquidity while maintaining full exposure to the company’s future growth.

Avoid signalling or dilution
Selling shares, particularly in a private company, can send unintended signals to investors, management, or the market. It may also dilute ownership. Share-backed lending can provide a more discreet solution, preserving both control and perception.

Retain upside potential
By using equity-backed lending instead of selling, borrowers continue to benefit from any increase in the company’s valuation. This is particularly important where a liquidity event, such as a sale or IPO, is expected in the future.

Access capital pre-exit
Private companies are increasingly taying private for longer, meaning significant value can be built before any exit event. Private credit lending enables shareholders to access that value early, providing liquidity against private shares without waiting for a sale or listing.

This type of lending is less about short-term financing and more about strategic capital access, allowing shareholders to balance liquidity needs with long-term ownership.

How Lending Against Private Company Shares Works

A loan against shares secured on a single private company is structured differently from traditional lending, with a strong focus on downside protection and careful underwriting. While terms vary, most private credit lending facilities tend to follow a similar framework.

Collateral (Single Company Equity)

The loan is secured against the borrower’s ownership stake in one private company. Unlike diversified portfolios, this introduces concentration risk, so lenders place significant emphasis on the quality, performance, and ownership structure of the business when lending against private company shares.

Loan-to-Value (Typically 15-45%)

Given the illiquidity of private shares, lenders often apply conservative loan-to-value ratios, typically ranging from 15% to 45%. The exact level depends on factors such as company maturity, financial performance, and investor backing, ensuring a buffer against valuation changes.

Pricing (PIK vs Cash Pay)

Interest is often structured as either:

• PIK (Payment-in-Kind) - interest accrues and is paid at maturity
• Cash pay - interest is serviced regularly

PIK structures are common where liquidity is limited, aligning the loan with the borrower’s cash flow profile.

Term (1–10 Years)

Facilities typically run from 1 to 10 years, depending on the expected timeline to a liquidity event, such as a sale, refinancing, or IPO. This makes the structure well-suited to borrowers seeking liquidity against private shares ahead of an exit.

Non-Recourse Structures

Many loans are structured on a non-recourse basis, meaning the lender’s claim is limited to the pledged shares rather than the borrower’s wider assets. This is a defining feature of equity-backed lending, helping to ring-fence risk for the borrower.

These structures are highly tailored, balancing access to capital with the risks associated with borrowing against private company shares.

How Lenders Underwrite Private Shares

When structuring a loan against shares in a single private company, underwriting is far more detailed than traditional lending. Without public market pricing, lenders rely on deep, company-level analysis to assess risk when lending against private company shares.

Company fundamentals
Lenders begin by evaluating the core strength of the business, including its business model, competitive positioning, and market dynamics. A clear path to growth and a defensible market position are typically considered important when assessing equity-backed lending structures.

Revenue and profitability
Consistent revenue growth, strong margins, and cash flow generation are key indicators of stability. For more mature companies, predictable earnings can support stronger terms, while earlier-stage businesses may require more conservative structuring.

Investor base (Private Equity / Venture Capital backing)
The presence of reputable institutional investors can significantly strengthen a case. Private equity or venture capital backing provides confidence around governance, reporting standards, and valuation discipline, which is particularly important in private credit lending.

Funding rounds and valuation
Lenders analyse recent funding rounds to understand how the company has been valued over time. This includes reviewing pricing, investor participation, and terms, helping to establish a realistic view of value when providing liquidity against private shares.

Governance and management
Strong leadership and governance structures are essential. Lenders assess the experience of the management team, board composition, and decision-making processes to ensure the business is well positioned to navigate growth and potential challenges.

Underwriting is about building a complete picture of the company, not just its valuation. This depth of analysis is what enables lenders to structure borrowing against private company shares in a way that balances opportunity with risk.

Typical Loan Terms (Private Equity vs Venture-Backed)

Loan terms in lending against private company shares vary depending on whether the underlying business is backed by private equity or venture capital. This reflects differences in maturity, cash flow visibility, and overall risk profile.

Private equity-backed companies tend to support more structured loan against shares facilities, with clearer exit pathways such as sponsor-led sales or recapitalisations. In contrast, venture-backed businesses often require more flexible equity-backed lending structures, reflecting higher growth potential alongside increased risk.

What Can You Use a Loan Against Shares For?

A loan against shares is highly flexible, making it a valuable tool for individuals looking to unlock liquidity against private shares without selling their stake. In practice, it is used across a range of high-value, strategic scenarios.

Property purchases
One of the most common uses is funding property acquisitions. By borrowing against private company shares, borrowers can raise capital for a deposit or full purchase, allowing them to act quickly without liquidating equity or waiting for an exit event.

Diversification
Where wealth is concentrated in a single company, a share-backed lending structure can be used to diversify into other asset classes such as real estate, public markets, or alternative investments, reducing overall concentration risk.

Tax liabilities
Significant tax events, such as option exercises or dividend payments, can create short-term liquidity needs. A loan against shares can provide a way to meet these obligations without forcing a sale of equity at a potentially suboptimal time.

Business ventures
Entrepreneurs and investors often use equity-backed lending to fund new ventures or co-investment opportunities, leveraging existing wealth to support future growth without diluting their position in the original business.

Exercising stock options
For executives, exercising stock options can require substantial capital. Private credit lending solutions allow individuals to finance this process, increasing their ownership stake while deferring the need for immediate liquidity.

The use cases are less about the loan itself and more about strategic capital deployment, using borrowing against private company shares to access opportunities while preserving long-term ownership.

Risks of Borrowing Against Private Company Shares

While a loan against shares can provide effective access to liquidity, particularly in concentrated portfolios, it also carries specific risks. These are more pronounced when borrowing against private company shares, where assets are illiquid, and valuation is less transparent.

Concentration risks
The loan is secured against a single company, meaning there is no diversification to offset downside exposure. If the business underperforms, the value of the collateral, and therefore the security of the loan, can be directly impacted.

Illiquidity
Private shares cannot be easily sold, especially compared to listed equities. This makes both valuation and recovery more complex, which is why private credit lending structures tend to be more conservative in their terms.

Valuation uncertainty
Unlike public markets, private company valuations are not continuously updated. They are typically based on funding rounds or internal assessments, which may not reflect real-time market conditions. This creates additional risk when structuring equity-backed lending.

Enforcement challenges
In a default scenario, lenders may face difficulties realising value from the shares. Secondary markets for private equity are often limited, and selling a minority stake can be complex and time-consuming.

Legal restrictions
Shareholder agreements frequently include transfer restrictions, consent requirements, or other legal provisions that can limit a lender’s ability to take control or sell the shares. These factors are a key consideration in share-backed lending structures.

How to Improve Terms and Reduce Risk

When structuring a loan against shares, particularly where the collateral is concentrated in a single private company, lenders focus heavily on downside protection. However, borrowers can often improve terms, including pricing, leverage, and flexibility, by reducing perceived risk through structuring.

Add diversified assets
Introducing additional assets alongside the core shareholding can significantly strengthen the overall collateral package. This might include property, listed securities, or other investments, helping to offset concentration risk when borrowing against private company shares.

Provide additional collateral
Supplementing the loan with more liquid or easily valued assets can improve lender confidence. In equity-backed lending, combining private shares with other forms of security often results in higher loan-to-value ratios and more competitive pricing.

Personal or deficiency guarantees
In some cases, lenders may require a personal guarantee or a deficiency guarantee from a third party. While this introduces additional exposure, it can materially enhance terms by reducing the lender’s risk in a private credit lending structure.

Strong lender positioning
Perhaps the most important factor is how the transaction is presented. Clearly articulating the company’s strengths, growth trajectory, investor base, and exit strategy can significantly influence lender appetite. Positioning is critical in share-backed lending, where underwriting is highly bespoke and reliant on narrative as well as numbers.

Example Use Case

A UK-based entrepreneur with circa £205m in private company shares required liquidity to fund a property purchase, without selling equity or providing additional collateral.

A £20m+ loan against shares was structured on a non-recourse basis, secured solely against their stake in a venture-backed European company.

This enabled the client to access capital while retaining full ownership and upside, demonstrating how borrowing against private company shares can provide liquidity where traditional lenders cannot.

Loan Against Shares vs Selling Equity

When considering how to access liquidity from a private company, the key decision is often whether to borrow against shares or sell them. A loan against shares offers a way to access capital while retaining ownership, whereas selling equity provides liquidity at the cost of future upside.

For many borrowers, the decision comes down to timing and long-term strategy. Borrowing against private company shares allows individuals to access liquidity against private shares today, while maintaining exposure to future value creation, particularly relevant where a liquidity event such as a sale or IPO is anticipated.

A loan against shares is often used where preserving ownership and upside is a priority, while selling equity may be more appropriate where a full or partial exit is intended.

Who Uses Share-Backed Lending?

A loan against shares is typically used by individuals whose wealth is concentrated in a single company and who require liquidity without selling their stake. As a form of equity-backed lending, it is most relevant to those with significant exposure to private equity.

Founders
Business owners often have most of their wealth tied up in their company. Borrowing against private company shares allows them to access capital for personal or strategic use without diluting ownership or signalling an exit.

Executives
Senior executives with equity or stock options may use share-backed lending to unlock liquidity, particularly when exercising options or managing tax liabilities, without needing to sell shares prematurely.

Early investors
Angel investors and early-stage backers frequently hold valuable stakes in private companies but face long timelines to exit. A loan against shares can provide a way to access that value ahead of a sale or IPO.

High-net-worth individuals
For HNW individuals with concentrated positions, private credit lending offers a tailored solution to access liquidity against private shares, often forming part of a broader wealth and investment strategy.

In practice, share-backed lending is not a mass-market product; it is a specialised solution for individuals with complex financial profiles, where structuring and lender access are critical to achieving the right outcome.

How to Get a Loan Against Shares (Step-by-Step)

Arranging a loan against shares, particularly when borrowing against private company shares, requires a structured approach. While each transaction is bespoke, the process typically follows these key steps.

1. Assess your shareholding
Start by understanding the size, type, and structure of your equity stake. Lenders will consider factors such as ownership percentage, share class, and any restrictions when evaluating lending against private company shares.

2. Value the company
Establishing a realistic valuation is critical. This is typically based on recent funding rounds, financial performance, and investor backing. In equity-backed lending, lenders will often apply a conservative view to account for valuation uncertainty.

3. Structure the facility
The loan is then tailored to your requirements, including loan size, term, pricing, and whether the structure is recourse or non-recourse. This is a key stage in private credit lending, where flexibility allows the facility to align with your liquidity needs.

4. Select the right lender
Not all lenders offer share-backed lending, particularly against private company equity. Accessing specialist private credit providers with experience in complex transactions is essential to achieving the right outcome.

5. Complete the transaction
Once terms are agreed, legal documentation is finalised, and the shares are pledged as collateral. Following completion, funds can be drawn, providing immediate liquidity against private shares.

The process is relatively straightforward in principle, but outcomes depend heavily on structuring, positioning, and access to the right lenders.

FAQs

Can you borrow against private company shares?
Yes, it is possible to secure a loan against shares in a private company, although it typically requires specialist lenders. Unlike public equities, lending against private company shares involves detailed underwriting and conservative structuring due to illiquidity and valuation considerations.

How much can you borrow against shares?
Borrowing levels typically range from 15% to 45% loan-to-value, depending on the company’s strength, investor backing, and liquidity profile. In equity-backed lending, more mature, private equity-backed businesses may support higher leverage than early-stage or venture-backed companies.

What is the risk of share-backed lending?
The main risks include concentration exposure, illiquidity, and valuation uncertainty. If the underlying company underperforms, the value of the collateral may fall. In some cases, this can impact loan terms or recovery, making careful structuring essential in private credit lending.

Do lenders accept private company shares?
Yes, but only a limited number of specialist lenders offer share-backed lending against private company equity. These lenders focus on company fundamentals, investor base, and valuation rather than traditional income metrics when assessing borrowing against private company shares.

Is this better than selling equity?
It depends on the borrower’s objectives. A loan against shares allows you to access liquidity while retaining ownership and future upside, whereas selling equity provides immediate cash but reduces exposure. For many, it is a strategic alternative rather than a direct replacement.

Conclusion

A loan against shares provides a strategic way to access liquidity without selling equity, allowing shareholders to unlock capital while retaining control and full exposure to future growth. For those with wealth concentrated in a single private company, this can be a highly effective alternative to traditional financing or forced asset sales.

However, the success of borrowing against private company shares depends on how the transaction is structured. Factors such as valuation, lender selection, collateral, and risk management all play a critical role in determining both terms and long-term outcomes.

For borrowers considering lending against private company shares, working with a specialist who understands both the private credit market and how to position complex equity-backed scenarios can make a significant difference, ensuring the structure aligns with both immediate liquidity needs and broader strategic objectives.