Securities Based Lending - Getting a Loan Against Your Stock

Imagine being able to create liquidity by tapping into the value of your securities-based investment account without the need to sell a portion of your portfolio. Not only would this allow you to gain liquidity without disrupting your investment strategies, but it could also save you on a tax bill, particularly if it was a short-term capital gain.

Imagine being able to get the funds quickly, when you want and for what you want.

With a securities-based line of credit, you can have the best of both worlds.

A Securities-Based Line of Credit (SBLOC) allows you to use your investment accounts as collateral for a variable or fixed rate line of credit. Proceeds from the credit facility can be used for a number of short-term or long-term financing needs, such as real estate acquisitions, big ticket purchases (car, boat, etc.), business investments, debt refinancing, short-term cash needs, bridge loans between real estate transactions, and general liquidity for personal or business expenses. It is important to note that the loan proceeds cannot be used to purchase securities, and this is not “margin” to buy investments through leverage.

We typically see these accounts used when our clients:

• Want to quickly purchase real estate and not wait for a formal mortgage
• Need a bridge loan between buying a property before receiving funds from selling a property
• Need access to cash quickly for business purposes or a large expenditure & don’t want to sell investments subjected to capital gains tax
• Want to remodel a home and desire funds quickly
• Need money to cover a large bill (such as taxes or stock option exercise cost) but don’t want to sell investments at short-term capital gains rates (i.e., borrow money for the bill and then pay off the loan once the investment becomes a long-term capital gain)

What types of accounts can be pledged as collateral?

Any non-qualified account including equity, fixed income, as well as cash & cash equivalents can serve as collateral. Retirement accounts cannot be pledged.

How much can I borrow?

Typically, between 50% and 60% of a diversified investment account portfolio, with a default rate of 70%.

What are the interest rates?

Competitive rates – both LIBOR-based variable rate and fixed rate options are available. The LIBOR-based variable rate is between 2.0% - 2.5% plus 30-day LIBOR with a floor of 2.99%. Since 30-day LIBOR is currently 0.11% (March 2021), the minimum floor of 2.99% interest applies. Fixed rates with 1, 3 or 5 year options are available upon request.

How can loan principal be repaid?

Loan principal can be repaid at any time in any amount via wire transfer, ACH or check. There are no prepayment penalties. Interest payments can be made via ACH from the client’s bank deposit account.

How long does the process take?

Our simplified online process enables us to deliver loan documents paperless and faster than ever. Generally, funds can be available within 10 days. If a line of credit is already established, funds can be disbursed via wire within 48 hours. There are two steps to the process. Step 1 is opening a SBLOC, which is just an open line of credit. The minimum line of credit is $100,000 and there is no cost to open this line of credit. The benefit of doing so is it would enable you to have quick access to funding if/when you need it. Step 2 is to then request a “draw” against your line of credit in the amount you need.

One thing that is consistent in all of our financial lives is that we never know when an emergency or opportunity arises that could require you to need additional liquidity. By opening a SBLOC, you would have access to the cash you need quickly.

For our wealth management clients, we have SBLOC options available for our clients who have post-tax investment accounts at both Fidelity and TD Ameritrade.

If you have any questions on options available to you, please don’t hesitate to reach out.

Securities-based lending is a non-purpose margin loan secured by eligible, marketable securities. It is non-purpose because the proceeds of the line of credit cannot be used to purchase securities. Securities-based lending has special risks and is not suitable for all investors. The risk of securities-based lending include: (i) market fluctuations that may cause the value of pledged assets to decline, (ii) a decline in the value of the pledged securities that could result in selling the securities to maintain equity, and (iii) possible adverse tax consequences as a result of selling securities. AccessTSC is a digital platform of TriState Capital Bank and is offered exclusively by TriState Capital Bank.