The after-tax cost comparison almost always favors the Lombard loan by 3 to 8 percentage points once you factor in the capital gains tax that selling securities would have triggered. The headline interest rate comparison alone understates the Lombard advantage substantially.
Lombard Loan
A Lombard loan is extended by a private bank or custodian against a pledged portfolio of liquid assets, typically equities, bonds, or funds, with loan-to-value ratios running from 50% on equities to 90% on investment-grade bonds. Rates are usually SOFR or EURIBOR plus a spread of 0.5% to 1.5%, making the all-in cost 5% to 7% in the current environment, often well below what a conventional personal loan charges. The core advantage is tax deferral: you access liquidity without disposing of the underlying assets, so no capital gains tax is triggered. This is the structural foundation of the buy-borrow-die strategy and works best for borrowers with portfolios above $1 million held at a single custodian. Compare this to a margin loan if your portfolio is held in a brokerage rather than a private bank, since the mechanics and risk controls differ meaningfully.
Normal Loan
A normal loan, covering personal loans, unsecured lines of credit, and standard consumer installment debt, is underwritten against income and credit score rather than asset value. Rates for creditworthy borrowers in the US currently sit between 8% and 14% for unsecured personal loans and around 7% to 9% for auto-secured or other asset-backed consumer products. There is no portfolio pledge, no margin call risk, and no custodian relationship required, which makes this the right tool for someone without a substantial liquid portfolio or for discrete borrowing that the lender does not need visibility into. The downside is that interest is almost never deductible for personal use, and the higher rate compounds the cost over time compared to a pledged-portfolio structure.
Tax Treatment: Where the Gap Gets Serious
Lombard loan proceeds are not income and are not taxable on receipt, regardless of the jurisdiction. A normal loan is also not taxable on receipt, so this point is a draw, but the divergence opens up on the interest side and the underlying asset treatment. Lombard interest paid on loans used for investment purposes can often be deducted against investment income in jurisdictions including the US, UK, Switzerland, and Luxembourg, while personal loan interest rarely qualifies for any deduction. More importantly, selling securities to fund spending in lieu of borrowing would crystallize capital gains tax, often at 20% to 30% depending on jurisdiction and holding period. A Lombard structure sidesteps that entirely for as long as the loan is outstanding, which is why family offices use rolling Lombard facilities as a permanent liquidity layer rather than a one-time financing event.
Risk Profile and When Each Structure Breaks Down
The primary risk in a Lombard loan is a margin call scenario: if the pledged portfolio drops in value and breaches the LTV threshold, the bank can liquidate positions without your consent, often at the worst moment in the market cycle. Normal loans carry no such forced liquidation risk because the collateral is your income or creditworthiness, not a live asset portfolio. Lombard facilities also restrict what you can do with pledged assets, including selling, transferring, or pledging them elsewhere, so the structure reduces portfolio flexibility even while providing liquidity. For borrowers with concentrated single-stock positions or illiquid holdings within a broader portfolio, the Lombard route carries meaningful sequence-of-returns risk that a plain personal loan or income-backed line of credit simply does not.
Things people ask first.
What is the minimum portfolio size needed to get a Lombard loan?
Most private banks set a floor between $500,000 and $1 million in pledgeable assets, though some Swiss and Liechtenstein institutions will consider smaller portfolios if the client relationship is broad. Below that threshold, a margin loan through a brokerage is generally the closest equivalent.
Can a normal person get a Lombard loan, or is it only for the ultra-wealthy?
Lombard loans are available to anyone who holds a qualifying investment portfolio at a bank or brokerage that offers the product, which is not restricted to ultra-high-net-worth clients. Interactive Brokers, for example, offers a pledged-asset line to retail customers with portfolios above roughly $100,000, though private bank terms are typically more favorable above $1 million.
Is a Lombard loan interest tax deductible?
It depends on use of proceeds and jurisdiction. In the US, interest on a loan used to purchase or carry investments can be deducted against net investment income under IRC Section 163(d). In Switzerland, interest on Lombard loans is generally deductible against investment income at the cantonal and federal level. Personal use of proceeds typically breaks the deductibility.
What happens if my portfolio drops and I have a Lombard loan outstanding?
The bank will issue a margin call requiring you to either post additional collateral or repay part of the loan to bring the LTV back within limits, usually within one to three business days. If you do not respond, the bank can liquidate pledged securities at current market prices to cover the shortfall, which can crystallize the exact capital gains you were trying to defer.
Do normal loans show up on my credit report while Lombard loans do not?
Standard personal and consumer loans are reported to credit bureaus in most jurisdictions. Lombard loans extended by private banks typically are not reported to retail credit bureaus, since they are bespoke banking facilities rather than consumer credit products, though this varies by institution and country.
Which loan type is better if I need cash within 48 hours?
A Lombard loan against an already-established pledged portfolio can often be drawn in 24 to 48 hours once the facility is in place. Setting up a new Lombard facility from scratch takes one to four weeks. A personal loan from a fintech lender can fund in one to two business days, so for genuinely urgent, one-off needs without an existing facility, the normal loan may be faster.
Ready to run a permanent Lombard facility as part of a buy-borrow-die structure?
The Offshore Playbook covers how to stack Lombard lending against trust structures, which jurisdictions offer the most favorable pledge arrangements, and how to combine deferred realization with estate planning to compress both income and transfer tax across generations.
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