Equity line of credit (ELOC)
An equity line of credit (ELOC) is an agreement under which an investor commits to buy a company's new shares over time, at the company's request, at a price set by a formula tied to recent trading.
Last verifiedHow it works
A company signs a purchase agreement with a single investor. The investor commits to buy up to a stated dollar amount of common stock, for example "up to $50 million", over a period such as 24 or 36 months. The company decides when to sell: it sends a purchase notice, and the investor buys shares at a price set by a formula, usually a discount to the volume-weighted average price (see VWAP discount) over a short pricing window.
The investor then resells those shares into the market. Because the investor buys the shares directly from the company, the resale is usually registered on a resale registration statement (see S-1 resale), with the investor named as the selling shareholder.
Why it matters
An ELOC is a standing source of new shares. Each purchase notice adds to the share count, and the investor's profit comes mainly from the gap between its discounted purchase price and the price it sells at. Agreements usually cap each purchase by a share of recent daily volume and by a beneficial ownership limit, and exchange rules (such as Nasdaq Listing Rule 5635(d)) can cap total issuance below 20% of the pre-deal share count unless holders approve more or the price stays above a minimum.
Worked example
Hypothetical: Company X sends a purchase notice for 1,000,000 shares. The pricing formula is 97% of the lowest daily VWAP over three days. The lowest VWAP is $2.00, so the investor pays $1.94 per share, and Company X receives $1,940,000.
How to spot it
Look for an 8-K under Item 1.01 describing a "purchase agreement" or "equity purchase agreement", followed by an S-1 registering shares for resale by the investor. Commitment shares paid to the investor at signing are another common feature. The guide Equity lines (ELOCs) covers the terms in detail.
See it on DilutionScan
Companies DilutionScan covers, with the instruments read from their SEC filings. Open one to see each instrument and the filing it came from.
- SMXSMX (Security Matters) Public Limited Company Ordinary Shares10 warrant series, 8 convertibles, 2 equity lines, 4 shelf registrations, 4 S-1 registrations and 2 completed offerings on file
- BNAIBrand Engagement Network, Inc.14 warrant series, 2 convertibles, 1 equity line, 2 S-1 registrations and 6 completed offerings on file
- ENLVEnlivex Ltd. Ordinary Shares10 warrant series, 1 convertible, 2 ATM programs, 1 equity line, 4 shelf registrations and 2 completed offerings on file
Guides that use this term
- Equity Line of Credit (ELOC) Financing ExplainedHow an equity line of credit (ELOC) works, and why share caps, volume limits, ownership blockers and falling prices keep proceeds far below the headline amount.
- Authorized Share Increases: Reading the Proxy VoteWhat authorized shares are, why companies ask shareholders to increase them, how to calculate real headroom, and how a reverse split changes the share math.
- Prepaid Advance Agreements: How They Become SharesHow a prepaid advance agreement works: cash up front repaid in discounted shares, and how the discount, lookback, floor and triggers set the share count.
- Form S-1 Explained: IPO vs Resale RegistrationForm S-1 explained: IPO vs resale S-1 registrations, how an S-1 moves through S-1/A amendments to effectiveness, and what the 424B4 and 424B3 prospectuses mean.
Related terms
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Definition from the Signal8 Academy glossary. Educational content only. DilutionScan and Signal8 are not broker-dealers or investment advisers, and nothing here is a recommendation to buy or sell any security.