Structured secondaries and loans against private-company stock describe the same financing. An existing shareholder borrows against shares in a private business. The transaction is called a secondary because the liquidity goes to that shareholder, not to the company. It is structured as credit because the shareholder pledges stock to secure repayment instead of selling it outright at closing.
The borrower keeps the shares, voting rights and potential upside while the loan remains performing, subject to the final documents. The lender receives collateral rights and may enforce against the shares after a default. No new company shares are issued, and the proceeds do not raise primary capital for the company.
The short answer:
a structured secondary can provide liquidity to founders, employees and early investors who hold valuable private shares. Approval is never automatic. Every transaction remains subject to lender underwriting, issuer restrictions, an enforceable security package and a credible repayment plan.
Why shareholders use structured secondaries
Private-company stock can represent most of a shareholder's net worth while producing no current cash. A founder may need capital for taxes or diversification. An employee may want to exercise vested options. An early investor may need interim liquidity before a tender offer, acquisition or IPO. Selling shares can solve that problem, but it permanently transfers ownership and future appreciation.
A structured secondary offers another path. The shareholder receives loan proceeds today and retains the pledged stock while complying with the loan. That can be attractive when the holder believes the company's future value exceeds today's secondary-market price, or when the company limits outright sales. The tradeoff is real debt: interest accrues, covenants apply, maturity must be managed and default can result in foreclosure.
Structured secondary loan versus an outright sale
| Feature |
Structured secondary loan |
Outright secondary sale |
| Transaction |
A lender advances money against pledged private shares |
An investor purchases existing private shares |
| Ownership at closing |
The borrower generally retains the shares while performing |
The buyer receives ownership of the sold shares |
| Future upside |
The borrower retains upside, less financing costs, unless enforcement occurs |
The seller gives up future gains on the shares sold |
| Payment obligation |
Principal, interest and fees must be paid under the credit agreement |
No loan repayment obligation arises from the sale |
| Main execution issue |
Collateral value, consent, perfection, repayment and lender exit |
Buyer eligibility, price, transfer approval, ROFR and tax |
A direct sale is not a structured secondary loan. It is the main alternative to one. The right choice depends on whether the shareholder values permanent liquidity more than continued ownership, and whether the shareholder can safely service or refinance debt.
How a structured secondary works
1. Verify the stock
The borrower documents ownership, vesting, exercise, share class, acquisition date, certificates or ledger records and all existing liens.
2. Review the issuer
The lender evaluates company performance, cash runway, capitalization, governance, investor support and possible liquidity events.
3. Test legal permission
Counsel reviews the charter, bylaws, equity plan, stock documents, shareholder agreements, ROFR and restrictions on pledges or transfers.
4. Set collateral value
The lender adjusts the last round price for share-class rights, dilution, volatility, illiquidity and the expected time to realization.
5. Negotiate the credit
The parties agree on principal, advance rate, interest, maturity, recourse, covenants, repayment triggers and default remedies.
6. Perfect the lien
The closing establishes the security interest through the filings, possession, control and issuer acknowledgments required by counsel.
The facility may be made directly to the shareholder or through an approved special-purpose vehicle that owns the pledged shares. Using an SPV does not change the essential transaction. It remains a loan secured by private-company stock.
Which shares can support a loan?
Fully issued, vested and paid-for common or preferred shares are the clearest collateral candidates. The lender must confirm that the borrower owns them, that no competing lien exists and that the issuer permits the pledge and any enforcement transfer. Restricted stock may qualify if its contractual and vesting conditions are acceptable.
Unexercised employee options usually are not issued stock. They are contractual rights to acquire stock and may be nontransferable. A holder may need separate exercise financing and company approval before resulting shares can support a pledge. Unvested awards, phantom equity and interests subject to forfeiture are also difficult to finance.
Why the latest round price is not collateral value
A private funding round provides a reference point, not a lender's recovery value. The round may price preferred shares with liquidation preferences, anti-dilution protection and other rights that the borrower's common shares do not have. There is no daily market, and a forced or delayed sale may occur at a significant discount.
Illustrative example
A $10 million paper position may support a $1.25 million loan
Assume common shares appear to be worth $10 million using the latest preferred round price. A lender applies a 50% adjustment for share-class differences, dilution, concentration and illiquidity, leaving $5 million of eligible collateral value. A 25% advance against that adjusted value produces a $1.25 million loan.
This example is not an offer or market quote. A lender could approve more, approve less or decline the transaction. Advance rates depend on the issuer, collateral, recourse and exit path.
Valuation typically considers recent primary and secondary transactions, financial performance, the preference stack, option dilution, 409A or other fair-value work, comparable companies, financing momentum and the probability and timing of an approved liquidity event.
What lenders underwrite
| Area |
What the lender needs to establish |
Why it matters |
| Issuer quality |
Growth, runway, governance, capitalization and investor support |
The collateral depends on the underlying company's value |
| Share class |
Rights, preferences, dilution exposure and position in the waterfall |
Different classes can have very different recovery values |
| Ownership |
Issued, vested, paid-for shares with verified title and no hidden claims |
The borrower can pledge only an interest it actually owns |
| Transferability |
Permission to pledge and a workable route to transfer after default |
A lien has limited value if the lender cannot monetize the stock |
| Repayment |
Cash flow, other assets, refinancing or a credible liquidity event |
Collateral should not be the only plan for a performing repayment |
| Information |
Reliable financial updates and notice of material corporate events |
Private issuers do not provide continuous public disclosure |
A financing request should include the cap-table statement, grant and exercise documents, stock certificates or ledger evidence, equity plan, shareholder agreements, recent financing documents, available company financials, tax basis information and details of every existing lien or liquidity arrangement.
Issuer consent and transfer restrictions
Company cooperation is often decisive. A charter, bylaw, equity plan or shareholder agreement can restrict pledges, liens and transfers. It may also give the issuer or other shareholders a right of first refusal, require board consent or limit the type of buyer that may receive shares after enforcement.
For Delaware corporations, Section 202 of the Delaware General Corporation Law
recognizes permitted stock-transfer restrictions, including provisions that require company consent or give the company a prior opportunity to acquire the shares. The exact issuer documents must be reviewed because some define a pledge or foreclosure as a restricted transfer.
A lender may therefore require an issuer acknowledgment covering the borrower's ownership, the company's consent to the lien, notice procedures and recognition of enforcement rights. A transaction can fail even when the stock is valuable if the issuer will not cooperate.
Security interest, perfection and control
The credit agreement creates payment obligations, but a separate collateral package makes the shares security for those obligations. Counsel must determine how to attach and perfect the lien based on the issuer's jurisdiction, the borrower's location and whether the securities are certificated, uncertificated or held through an intermediary.
Delaware UCC Article 8, for example, distinguishes certificated from uncertificated securities and describes how control of an uncertificated security can arise when the issuer agrees to follow the secured party's instructions without further owner consent. A closing may require certificate delivery, endorsements, UCC filings, a control agreement, an issuer acknowledgment or a combination selected by counsel.
Enforcement also remains subject to securities law. SEC Rule 144
addresses restricted securities, holding periods and certain pledged-security issues after default. In Rubin v. United States, the U.S. Supreme Court held that a stock pledge can constitute an offer or sale for federal antifraud purposes. A lender needs a lawful resale route, not only a contractual right to foreclose.
Full recourse and limited recourse loans
Recourse describes what the lender may pursue beyond the pledged stock. In a full-recourse structured secondary, the borrower remains liable for the entire debt even if the collateral is worth less. In a limited-recourse loan, liability beyond the shares is contractually limited, often subject to exceptions for fraud, misrepresentation, unauthorized transfers or other bad acts.
Both are structured secondaries because both are loans against private-company stock. Limited recourse does not mean low risk or automatic approval. It usually requires stronger collateral, a lower advance rate, more lender control and higher pricing because repayment depends more heavily on an illiquid asset.
Pricing and costs
There is no standard rate card. Economics reflect issuer quality, loan size, adjusted loan-to-value ratio, recourse, maturity, information access, expected liquidity and enforcement risk.
Interest
The loan may use cash-pay interest, payment-in-kind interest that accrues to principal, or both.
Original issue discount
The lender may fund less than face value, increasing the effective cost of capital.
Professional expenses
Legal, valuation, diligence, collateral-control, administration and advisory fees may be payable by the borrower.
Minimum return
Early repayment can trigger minimum interest or a make-whole amount.
Exit economics
Some facilities include an exit fee or another negotiated participation, subject to legal and tax review.
Default costs
Default interest, enforcement expenses and additional-collateral provisions may apply.
Use Financely's private-credit term-sheet checklist
to review OID, covenants and lender protections. The security-interest perfection checklist
covers the wider collateral questions that should be resolved before closing.
Repayment, default and foreclosure
Repayment may come from income, other liquid assets, refinancing, an IPO, an acquisition, a company tender offer or an approved secondary sale. The expected liquidity event should be a plausible exit, not a promise. Private companies can remain private longer than anticipated, cancel tenders or decline in value.
If the borrower defaults, the lender may accelerate the debt and exercise its remedies under the loan and pledge documents. That can include pursuing recourse assets and enforcing against the stock. Foreclosure does not create an immediate public market. The lender still must follow applicable commercial and securities law, issuer restrictions and agreed transfer procedures.
Common mistakes
What can make a structured secondary unfinanceable
Frequent problems include presenting unexercised options as owned stock, applying a preferred-round price to junior common shares, hiding a prior lien, ignoring a ROFR, assuming company consent, promising a guaranteed IPO date or relying on screenshots instead of verified records.
The borrower should disclose every lien, option, trust interest, marital claim, transfer agreement or other arrangement affecting the shares. Double pledging stock or creating conflicting rights can stop a transaction and create serious legal exposure.
When a structured secondary makes sense
The issuer is financeable
The company has credible investors, reliable reporting, sufficient runway and defensible enterprise value.
The stock is verifiable
Ownership, share class, vesting, exercise and acquisition date can be documented.
The issuer will cooperate
The company permits the pledge and supports the required collateral arrangements.
The advance is conservative
The borrower accepts that an illiquid private position may support much less debt than its paper value.
Repayment is credible
The borrower has a realistic plan that does not depend on a guaranteed IPO or sale.
Retaining ownership matters
The potential benefit of keeping the shares justifies interest, fees and foreclosure risk.
A conventional securities-backed line of credit
is simpler when the collateral consists of liquid public securities with observable prices. A structured secondary requires bespoke valuation, documentation and lender placement because private shares lack continuous pricing and ready liquidity.
Frequently asked questions
What is a structured secondary?
It is a privately negotiated loan to an existing shareholder, secured by private-company stock. The shareholder receives liquidity, the company does not receive primary capital and the borrower retains the shares while the loan remains performing.
Can I borrow against unexercised stock options?
Usually not through a simple stock pledge because unexercised options are contractual rights, not issued shares. Exercise financing may be needed before resulting shares can serve as collateral, subject to company approval and the plan documents.
Does the company need to approve the loan?
Often yes. Company documents may restrict pledges or treat foreclosure as a transfer. The lender may also require confirmation of ownership and an issuer acknowledgment supporting control and enforcement.
What happens if the borrower defaults?
The lender may accelerate the loan, pursue available recourse and enforce against the pledged shares. Any transfer or sale must still comply with law, the issuer's governing documents and applicable securities restrictions.
Does borrowing against shares avoid tax?
No tax result should be assumed. The treatment depends on the structure and jurisdiction, and events such as debt cancellation, an SPV contribution or foreclosure can create consequences. The borrower should obtain independent tax advice.
Raise liquidity against private-company stock
Financely helps qualified shareholders evaluate, structure and place structured secondaries, meaning loans secured by private-company shares. We prepare lender materials, coordinate collateral and valuation workstreams and conduct targeted outreach, working with legal counsel and appropriately licensed service providers where regulated activity requires it.
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This article provides general information as of July 13, 2026, not legal, tax, securities, valuation, lending or investment advice. Structured secondaries remain subject to issuer documents, company consent, securities laws, tax rules, collateral-perfection requirements and lender underwriting. Financely is not a bank, lender, broker-dealer, investment adviser, custodian, law firm or valuation provider. Financely performs advisory and capital-placement mandates on a best-efforts basis and does not guarantee approval, funding, valuation or liquidity. Where required, regulated activities are performed by appropriately licensed service providers.
