Equity line of credit (ELOC)
Also called: equity line, ELOC, committed equity facility, standby equity purchase agreement, purchase agreement
An agreement under which an investor commits to buy a company's newly issued shares over time, at the company's request, at a price set by a formula tied to recent trading.
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How 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.
Related terms
Guides that use this term
Dilution 101 · 6 min read
Equity Lines of Credit (ELOCs): Why Up to $50 Million Is Not $50 Million
How an equity line of credit works, and why share caps, volume limits, ownership blockers and price declines usually keep proceeds far below the headline.
Dilution 101 · 6 min read
Authorized Share Increases: Reading the Proxy Vote Before the Dilution
What authorized shares are, why companies ask shareholders to increase them, how to calculate real headroom, and how reverse splits change the math.
Toxic financing · 6 min read
Prepaid Advances: Cash Up Front, Repaid in Discounted Shares
How prepaid advance agreements work, how the discount, lookback, floor and cash-payment triggers decide the share count, with a worked example.
Offerings & deals · 5 min read
Form S-1 Explained: IPO vs Resale Registrations, S-1/A and Effectiveness
How a Form S-1 moves from first filing to effectiveness, the difference between an IPO S-1 and a resale S-1, and what 424B4 and 424B3 mean.
Research pages · 6 min read
The Signal8 Dilution Tab, Card by Card
A walkthrough of every card on Signal8's Dilution tab, what each figure means, how coverage works, and why "Not measured" never means zero.
Research pages · 6 min read
How to Read the Dilution Pressure Score: Score, Max Measured and Risk Levels
The seven components of Signal8's Dilution Pressure Score, why it reads as points out of points measured, and how the risk levels and lower bounds work.