SBLOC Made Simple
Upcoming Expenses? Don't sell your investments - READ this first!
A securities-based line of credit (SBLOC) offers flexibility for various financial needs by using your investment portfolio as collateral instead of having to liquidate your holdings. It’s a quick setup with flexible terms allowing your investments to keep working for you.
You can spend your securities-based portfolio line of credit on generally anything of your financial choosing. If you are looking to make home renovations, purchase a new property, or would like more wiggle room in your financial decisions, you may consider using a securities-based line of credit (SBLOC). A securities-based line of credit is a line of credit issued by a bank similar to a home equity line of credit (HELOC). However, instead of using your home as collateral, you collateralize your investment portfolio.
The amount of your SBLOC is based on the value of your non-qualified investment account(s), usually up to 65% of the combined value. A non-qualified account is basically any investment account other than a retirement account or IRA. Interest rates are comparable to a HELOC and have flexible repayment schedules. The setup-up process is quick, easy and usually has no up-front cost. You may be subject to an increase in rates. Leveraging an SBLOC allows you to pledge your stocks, bonds, mutual funds, ETFs and other approved investments for virtually any purpose besides reinvesting back into the market.
It is important to note that SBLOCs are non-credit reported (a soft credit check may be performed) and do not require proof of income. If you are retired or self-employed you may still be able to reach the financial liquidity you need through a SBLOC.
...so what are the negatives? Again, the loan funds may not be used for other buy-transactions in your securities account. It may be difficult to transfer securities to another firm if the funds are collateralized and the other firm does not offer a SBLOC. You may be subject to increasing rates on the account as it is a variable rate. If the loan is defaulted on or credit maximum is reached and market declines, the lender can liquidate securities. In most cases, there is no tax write-off of the interest unlike a HELOC where you may receive a tax deduction.
SBLOC TAKEAWAYS
Similar to HELOC
Be UNRESTRICTED on what you use this line of credit for (read above)
Flexible Repayment Schedules
Non-Credit Reported
Suitable for all income levels with an investment account
Much More...