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A Bitcoin-backed business loan lets a company borrow fiat currency or stablecoins while pledging Bitcoin as collateral instead of selling it. The borrower normally keeps ownership, subject to the lender’s security interest, and receives the collateral back when the debt and fees are paid. The trade-off is that Bitcoin’s price volatility can raise the loan-to-value (LTV) ratio, trigger a margin call, and eventually cause a forced sale.
The contract—not a universal industry rule—sets the starting LTV, interest, fees, cure period, and liquidation authority. Read those terms as carefully as the rate.
What a Bitcoin-backed business loan is
Collateral is pledged, not normally sold
The business transfers Bitcoin to the lender or an institutional custodian under a pledge agreement. The lender advances dollars, another fiat currency, or stablecoins. Reserve’s legal terms describe the arrangement this way: “You retain ownership of your Bitcoin subject to our security interest until the loan is repaid.” That means the borrower keeps economic exposure to Bitcoin, but cannot freely withdraw or spend the pledged coins while the security interest remains.
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The debt and the collateral use different measures
The debt is usually denominated in dollars or another loan currency. The collateral value changes continuously with Bitcoin’s market price. LTV is calculated as:
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LTV = outstanding loan balance ÷ current market value of pledged Bitcoin × 100
If the loan balance stays constant and Bitcoin falls, the denominator becomes smaller and LTV rises. Interest that accrues to the balance also pushes LTV upward, even when Bitcoin’s price is unchanged.
Why businesses use this structure
A company may want working capital, inventory funding, payroll liquidity, or another permitted business use without disposing of a Bitcoin position. Borrowing preserves upside exposure if Bitcoin rises, but it also preserves downside exposure and adds interest, counterparty, refinancing, and forced-sale risk. Crypto-backed loan disclosures explicitly warn that liquidation is possible.
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Starting LTV
Starting LTV determines how much can be borrowed against a given amount of Bitcoin. For example, a 50% starting LTV means a $100,000 Bitcoin position supports a $50,000 initial loan before fees. A lower starting LTV leaves more room for a price decline; a higher starting LTV provides more cash but reaches maintenance thresholds sooner.
Published thresholds are contract-specific
Disclosures published in 2026 show why borrowers must compare the actual agreement rather than rely on a general rule.
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| Program or disclosure | Starting LTV | Margin call | Liquidation level | Stated liquidation result |
|---|---|---|---|---|
| Onramp’s Arch terms | Up to 50% | 70% | 80% | Partial sale intended to restore LTV to 50% |
| Arch help page | 60% | 70% | 80% | Liquidation intended to restore the starting level |
| Reserve | Not stated in the cited disclosure | 70% | 80% | Only the amount needed to restore a healthy position, according to its terms |
The two Arch references show that even documents for the same lending product can describe different starting levels. Confirm which version, jurisdiction, loan size, and product terms apply to the offer you sign.
A numerical example
Suppose a company borrows $50,000 against Bitcoin worth $100,000, creating a 50% starting LTV. Ignoring interest and fees, a Bitcoin value of about $71,429 produces a 70% LTV. A value of $62,500 produces an 80% LTV. The borrower has not borrowed more money, but the collateral has lost value.
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What happens at a margin call
A margin call is a demand to restore the required ratio. Typical cures are:
- depositing additional Bitcoin;
- making a principal repayment with cash or stablecoins; or
- using another cure specifically allowed by the agreement.
The notice method and deadline matter. Lantern advertises a 72-hour grace period, while other contracts can specify different windows. Ask whether the clock runs from the price breach, the lender’s notice, or confirmed receipt of funds. Also ask whether weekends, blockchain congestion, bank cutoffs, or verification delays count against the deadline.
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Keep a written record of the notice, the LTV calculation, the price source, and the time at which a cure is credited. A transfer that is initiated but not settled may not protect the account.
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When the lender can liquidate Bitcoin
Partial liquidation
At the liquidation threshold, some agreements sell only enough Bitcoin to bring LTV back to a target level. The cited Arch terms use an 80% trigger and describe selling enough to return to 50%; Reserve similarly says sale proceeds are applied to principal, accrued fees, and documented costs, with only the amount needed to restore a healthy position sold.
Partial liquidation still creates a taxable and economic event in many jurisdictions and permanently reduces the Bitcoin position. The sale price can be worse than the displayed index during a fast market, especially if the contract permits market orders or uses a particular trading venue.
Total liquidation and other default events
Do not assume liquidation is always partial. The agreement may allow broader remedies after a payment default, insolvency, breach of representations, or failure to cure. Check whether the lender may sell all collateral, whether it must give advance notice, and how any surplus is returned after the debt, interest, and costs are paid.
Fees charged at liquidation
Published examples illustrate the range:
| Provider disclosure | Liquidation-related charge | Trigger or context |
|---|---|---|
| BTCBacked | 5% liquidation fee | Listed with a 90% LTV threshold |
| Strike business FAQ | 0.99% liquidation fee | When liquidation follows critical LTV or failed payments |
| Lantern Bitcoin product | No liquidation fee advertised | Its published product terms also say there is no early-repayment penalty |
“No liquidation fee” does not mean a liquidation is cost-free: spread, trading costs, accrued interest, custody charges, and documented expenses may still apply if the contract permits them.
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Repayment structures and the cost of borrowing
Fixed maturity versus open term
| Product disclosure | Repayment design | Prepayment or rollover detail |
|---|---|---|
| Onramp/Arch | Fixed terms of up to two years | Repay in full; rollover may be possible after reassessment; no early-repayment penalty stated |
| Abra | Open term with accruing interest | No fixed maturity stated in the cited description |
| Lantern | Product-specific terms | No early-repayment penalty advertised |
A fixed term gives a defined maturity but may create a refinancing decision at the end. An open term avoids a scheduled maturity, yet interest continues to accrue and the lender can still enforce LTV and default provisions.
Published rates and fees
| Provider disclosure | Published charge | Qualification |
|---|---|---|
| Arch | 7.25%–10.49% interest | Current Bitcoin-backed-loan range; varies by size and other factors |
| Lantern | 10%–15% starting APR | Includes a 2% upfront fee |
| Abra | 1.00% borrowing transaction fee; 0.20% annual collateral fee | Published product charges |
| BTCBacked | 1.5% per-year platform fee | Published platform charge |
Compare the effective cost, not only the headline APR. Determine whether interest is simple or compounded, whether fees are withheld from proceeds or added to principal, how often collateral fees accrue, and whether a rollover starts a new fee schedule.
What releases the collateral
After the lender receives the required payoff, it should release the security interest and instruct the custodian to return the collateral. Strike describes Bitcoin being returned after successful completion of the loan. The contract should specify the release deadline, network fees, identity checks, and whether the returned coins must be the same on-chain units or merely an equivalent amount. Do not assume a verbal promise about “getting your Bitcoin back” overrides the custody and insolvency clauses.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Custody, insurance, and counterparty questions
Control of the collateral is a core credit risk. Before funding, obtain written answers to these questions:
- Who controls the private keys, and is the collateral held in segregated wallets?
- Can the lender rehypothecate, lend, stake, or otherwise reuse the Bitcoin?
- What happens if the lender, custodian, or borrower enters bankruptcy or insolvency?
- Which theft, hacking, or operational losses does insurance cover, and what exclusions and limits apply?
- How is the Bitcoin price determined, which trading venues are used, and how are outages handled?
- Can liquidation occur without additional notice after a threshold breach?
Reserve says its collateral is held with institutional custodians in segregated custody and is not rehypothecated. Lantern advertises insurance of up to $250 million against theft, hacking, and loss, but the scope, deductibles, exclusions, and claims process must be confirmed in the signed agreement. An insurance headline is not a guarantee that every loss scenario is covered.
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Business risks and ways to reduce them
Volatility and path dependence
The order of price moves matters. A temporary crash can trigger a sale even if Bitcoin later recovers. Once coins are sold, the business no longer benefits from that portion of a rebound. Model intraday and weekend declines, not only an average annual volatility assumption.
Liquidity planning
Keep a reserve of cash or unpledged Bitcoin large enough to meet a margin call during the cure window. Set internal alerts below the contractual threshold, identify who can authorize a repayment, and pre-test bank and blockchain transfer limits. A company that needs several business days to move funds should not operate close to the lender’s trigger.
Refinancing and operating risk
A fixed maturity may arrive when Bitcoin is depressed or credit markets are tight. An open-term facility can remain outstanding longer than planned while interest compounds. Include a repayment source in the business budget rather than relying on selling Bitcoin at an assumed future price.
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Tax and legal treatment
Abra states that borrowing against crypto is generally not a sale and typically does not trigger a taxable event, while expressly providing no tax advice. That statement is not universal. Treatment depends on jurisdiction, the borrower’s entity type, accounting method, interest-deductibility rules, the legal form of the pledge, and what happens during a liquidation, default, conversion, or debt cancellation.
Have a qualified local tax adviser review the loan before signing. Keep records of the Bitcoin’s tax basis, acquisition dates, wallet transfers, loan proceeds, fees, interest, repayments, and any collateral sale. A liquidation can be treated differently from a voluntary borrowing even when the original advance was not a sale.
A contract-review checklist
- Write down the starting LTV, maintenance or margin-call LTV, liquidation LTV, and the target LTV after a sale.
- Confirm whether liquidation is partial, potentially total, or also available after payment and insolvency defaults.
- Record the cure period, notice channel, time zone, settlement standard, and approved cure methods.
- Calculate the full cost: interest basis and compounding, origination or upfront charges, platform and custody fees, rollover charges, and liquidation fees.
- Check maturity, extension or rollover rights, prepayment treatment, and what happens if the lender declines a rollover.
- Confirm permitted business uses, reporting obligations, covenants, and events of default.
- Review key control, segregation, rehypothecation, insurance, bankruptcy treatment, and collateral-release timing.
- Identify the price oracle, trading venues, valuation frequency, rounding rules, and procedures during market or system outages.
- Ask whether the lender can change terms, fees, or thresholds for an existing loan and how much notice is required.
- Obtain tax and legal advice for the company’s jurisdiction before transferring Bitcoin.
Bottom line for a business borrower
A Bitcoin-backed loan converts part of a Bitcoin holding into working liquidity without an immediate sale, but it is a leveraged position with a moving collateral ratio. The safest comparison is not the advertised rate alone: it is the distance from your starting LTV to the margin-call and liquidation levels, the time and practical ability you have to cure a breach, the fees deducted during a sale, and the protections around custody and insolvency. Borrow conservatively, maintain unpledged liquidity, and rely on the signed terms rather than a product summary.
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