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.
Take advantage of the liquidity your assets can offer
Securities-based lending can potentially be a better means of accessing liquidity than other types of financing options. Proactively establishing a securities-based line of credit enables you to:
Compared to other financing strategies, securities-based lending solutions also feature more:
Be aware of the risks
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:
*Increases in variable interest rates will result in higher periodic payments.
**Diversification cannot ensure a profit or guarantee against a loss.
Please read important disclosures at the end of the article.
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