Liquidity Without Liquidation – How… | McKinley Carter Wealth Services

Wealth Management

March 22, 2021

Liquidity Without Liquidation – How to use Security-Based Lending

Financial Strategist

Picture it – It’s April 10th, and your tax bill is due in 5 days. Your emergency fund has been stretched by increased college costs, a broken furnace, or any number of unexpected expenses. Taking funds from your Individual Retirement Account (IRA) is not feasible without a significant penalty. Your brokerage account is fully invested and selling assets to pay a tax bill will create capital gains taxes for the next year. What can you do?

A Securities-Based Line of Credit (SBLOC) can give you much needed liquidity without liquidating your investments.

An SBLOC allows investors to use their non-qualified investment account(s) as collateral for a line of credit. The proceeds from the line of credit can be used for a variety of short- or long-term needs ranging from a short-term bridge loan or income taxes, to real estate acquisitions or new business ventures.

SBLOC Advantages

There are a variety of advantages to utilizing an SBLOC for liquidity. Your current investment strategies and objectives can continue without interruption is a major advantage, and your advisor will continue to have access to the accounts for trading and reporting purposes. Another advantage includes the ability to access competitive rates (fixed or variable). McKinley Carter Wealth Services has built strong relationships with a variety of partner lenders with quick electronic application processes and funding.

With these already established partnerships, McKinley Carter can offer personalized service to our clients and offer a variety of solutions tailored to our clients’ liquidity needs. A Security-Based Line of Credit with McKinley Carter’s partners can typically borrow 50 - 60% of the account value while only paying interest monthly through a linked checking account. There are also no prepayment penalties with these partners, and no fee while your line of credit remains unused.

SBLOC Risks

While there are many advantages to SBLOCs, there are also risks. When the markets perform poorly, the market value of the assets in the account may decrease in value which causes the value of the collateral to decrease. Depending on the outstanding value of the SBLOC being used, the lender may request additional assets to be added to the collateral account, or call the collateral and force liquidation of the assets at what may be a very low price.

If you have additional questions about Securities-Based Lines of Credit and if it is appropriate for your situation, please reach out to your McKinley Carter Advisory Team or call 866-306-2400.

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