Unlock Liquidity Solutions on Demand

• Securities-based lending is another means of managing wealth that permits you to leverage the power of your portfolio in order to fund a variety of personal or business needs
• The liquidity accessed through securities-based lending can be used for asset purchases, wealth planning, gifting, tax payments, and others
• As with all financial transactions, there are potential risks in borrowing against your portfolio, but they can be managed

An opportunity arises. Whether for a pied-à-terre in the city, a second home in the country, a vacation house at the beach—or other circumstances that require significant liquidity, such as tax planning, wealth transfers, or transformational charitable giving—why not leverage the power of your portfolio at your fingertips? Securities-based lending may afford the opportunity to free up available cash by using a portion of your eligible portfolio holdings as collateral. 

• Create ready cash for a litany of spending needs or smooth out intermittent or irregular cash flow
• Keep your investment strategy on track. Leveraging rather than liquidating a portion of your portfolio permits you to maintain market exposures, while continuing to earn dividends and interest, as well as the capital appreciation that could accrue from your investments
• Avoid potential taxable events by redeeming investments. Exercising your financial flexibility with your investments may help you avoid creating a steep tax obligation in the case of, say, selling a low-basis holding

• Competitive pricing (tied to attractive Secured Overnight Funding Rate, or SOFR)
• A simple, streamlined application process without fees or closing costs

As with all financial transactions, there are potential risks in borrowing against your portfolio. Among them is the possibility that market volatility may greatly reduce the value of your holdings, magnifying loss and perhaps requiring you to repay the borrowed funds or deposit additional funds to act as collateral. This, in turn, could potentially lead to unintended tax consequences and/or hinder your long-term investment strategy. Another risk is that your loan’s low interest rate (which is based on a premium over SOFR, and will rise in tandem) could increase, making the loan more expensive than you originally anticipated. 

While the risks of leveraging your investments to fund liquidity can never be completely avoided, they can be managed. One way to minimize potential risk is to not borrow more than a certain portion of the value of your securities that are collateralizing the loan. Being sure that an ample cushion appropriate for your balance sheet remains in place can serve as a risk buffer. 

In the event that the market value of your collateralized securities falls precipitously—or below levels set out in your loan agreement—there could be a “collateral call,” which requires the immediate repayment of borrowed funds.* However, you may be able to reduce the likelihood of such an event by taking certain steps, such as: 

• Selectively borrowing against less volatile investments (such as blue-chip stocks or U.S. Treasuries) that may be less likely to result in a collateral call to immediately repay funds
• Diversifying among asset classes that are not equally vulnerable to potential economic shocks, to help decrease the chance of a portfolio-wide dip** 
• Careful monitoring of investments, particularly during volatile times, in an effort to anticipate and sidestep drawdown risk of capital loss

Securities-based lending can provide a flexible way to access liquidity while keeping your long-term investment strategy intact, helping you address evolving financial needs without liquidating eligible portfolio assets. 

Learn how securities-based lending solutions can complement your broader wealth strategy and explore the customized financing capabilities available through our Private Banking services.

*Increases in variable interest rates will result in higher periodic payments.
**Diversification cannot ensure a profit or guarantee against a loss.

This article is for educational purposes only and is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.

There is no assurance that any investment, financial, or estate planning strategy will be successful.

The information in this article has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed.

Wilmington Trust is not authorized to and does not provide legal, tax, or accounting advice. Our advice and recommendations provided to you are illustrative only and subject to the opinions and advice of your own attorney, tax advisor, or other professional advisor. 

Credit is being offered by M&T Bank. Member FDIC. The credit offering requires an investment account at M&T Bank, Wilmington Trust Company and Wilmington Trust N.A. and sufficient eligible collateral to support a credit facility of the applicable loan amount. M&T Bank Wilmington Trust Company, and Wilmington Trust, N.A. are affiliated, but are separate entities. Neither M&T Bank, Wilmington Trust Company, nor Wilmington Trust, N.A.is responsible for the products and services of each other.

Borrowing with securities as collateral involves certain risks and is not suitable for everyone. A complete assessment of your individual circumstances is needed when considering a securities-based loan. You should review both the Securities-Based Lending Program Credit, Security and Guaranty Agreement and the Disclosure, Waiver of Conflict of Interest, Acknowledgment and Release carefully with your legal and tax advisors. Also consider the following:

• Credit secured by marketable securities can increase your level of market risk.
• The downside is not limited to the collateral value in your pledged account.
• Assets held in your accounts may lose market value or may be afforded less collateral value by the lender at any time, resulting in a collateral call.
• The collateral maintenance requirements can be increased at any time, which may result in a collateral call, and the lender is not required to provide you with advance written notice.
• You are not entitled to an extension of time on a collateral call.
• An increase to the variable interest rate will result in a higher periodic payment required and, if you are unable to make the higher periodic payment, could result in a collateral call. The sale of any securities in your account may be initiated, without contacting you, to meet a collateral call.
• Your ability to withdraw assets will be subject to the consent of the lender.
• The sale of your pledged securities may cause you to suffer adverse tax consequences. You should discuss the tax implications of pledging securities as collateral with your tax advisor. Neither M&T Bank Corporation, nor any of its subsidiaries, affiliates, or advisors, provide legal, tax or accounting advice. You should consult a legal and/or tax advisor before making any financial decisions. 

All securities and accounts are subject to eligibility requirements. Certain restrictions and terms and conditions apply. Tax-deferred assets are not eligible. Financing real estate with a securities-based loan or line of credit carries risk and may not be appropriate for your needs. Securities held in a retirement account cannot be used as collateral to obtain a loan.

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