Securities-Backed Lines of Credit (SBLOCs)
Securities-Backed Lines of Credit (SBLOCs) allow investors to borrow money using their investment securities as collateral. Unlike other loans, SBLOCs do not require liquidation of assets.
Introduction to Securities-Backed Lines of Credit (SBLOCs)
Securities-Backed Lines of Credit (SBLOCs) allow investors to borrow money using their investment securities as collateral. Unlike other loans, SBLOCs do not require liquidation of assets. Borrowers make monthly, interest-only payments, with the principal remaining outstanding until repaid. SBLOCs are non-purpose loans, meaning they can't be used to purchase more securities but can finance other expenses.
Benefits of SBLOCs
- Avoid Capital Gains Taxes: No need to sell securities for cash.
- Continued Benefits: Maintain dividends, interest, and appreciation of securities.
- Lower Interest Rates: Often lower than personal loans or credit cards.
- Flexible Usage: Funds can be used for virtually any purpose except buying more securities.
- Quick Access: Funds are usually available within a week of contract signing.
Qualifications for SBLOCs:
- Collateral Requirement: Must pledge stocks, bonds, or mutual funds held in fully paid-for cash accounts.
- Minimum Portfolio Value: Typically, at least $100,000 in market value.
- Credit Limits: Varies by firm, usually between 50% to 95% of the value of the collateral.
