What is a Securities Backed Line of Credit? (SBLOC)
Unlocking Hidden Liquidity: The Power of Securities-Backed Lines of Credit
Let’s talk about a financial secret that many wealthy individuals and savvy investors use—but doesn’t get nearly enough attention.
Imagine this: You’ve spent years carefully building your investment portfolio. Stocks, bonds, ETFs—you’ve made smart, strategic choices, and your portfolio has grown. But now, an opportunity arises. Maybe you want to invest in a business, fund a real estate purchase, or cover a large unexpected expense. You need liquidity, and the thought of selling your investments isn’t appealing. Selling could mean triggering taxes, disrupting your long-term plan, or missing out on future market growth.
This is where Securities-Backed Lines of Credit (SBLOCs) come in.
What Is an SBLOC?
An SBLOC is a flexible, low-cost way to borrow against your investments without selling them. Think of it as a revolving credit line backed by your portfolio. You get cash when you need it—without interrupting your investment strategy.
Here’s how it works:
✅ Your investment portfolio (excluding retirement accounts) serves as collateral.
✅ You can borrow a percentage of your portfolio’s value—without selling a single share.
✅ The loan is interest-only, meaning you only pay the interest each month, with no required principal payments.
✅ There’s no impact on your credit score, no income verification required, and no loan application fees.
✅ You retain potential market growth, keeping your long-term investment strategy intact.
Why Consider an SBLOC?
Let’s take a real-world example.
Meet Sarah and James. They’ve built a $2 million investment portfolio over the years. They have an opportunity to purchase a vacation rental property for $500,000. They could sell some investments to raise cash, but that would trigger capital gains taxes and disrupt their portfolio.
Instead, they open an SBLOC, borrowing against their investments at a competitive interest rate. This allows them to:
🔹 Secure the property quickly, without waiting for loan approvals.
🔹 Keep their investments intact and growing.
🔹 Only pay interest on the borrowed amount, giving them flexibility in repayment.
This isn’t just for real estate. SBLOCs can be used for:
✔️ Business investments
✔️ Large expenses (tuition, medical bills, estate planning)
✔️ Tax payments
✔️ Unexpected liquidity needs
Important Considerations
SBLOCs are powerful, but they’re not for everyone. Here’s what to keep in mind:
⚠️ Market Fluctuations: If the value of your portfolio drops, your lender may require additional collateral or a partial repayment.
⚠️ Not for Buying More Securities: Regulations prohibit using SBLOCs to purchase additional stocks or securities.
⚠️ Interest Costs: While typically lower than personal loans or credit cards, interest rates vary based on market conditions.
Is an SBLOC Right for You?
At Sterling Edge Financial, we help our clients make smart financial decisions that align with their long-term goals. An SBLOC can be a valuable tool when used strategically. But, like any financial tool, it should fit within a well-thought-out plan.
If you’d like to explore whether an SBLOC makes sense for your situation, let’s talk. We’ll walk through your portfolio, goals, and the potential risks and rewards—so you can make an informed decision with confidence.
📩 Reach out today for a conversation about smart liquidity strategies.
Kit Lancaster, CFP®, AWMA®
President
This content is being provided for informational purposes only and should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. Diversification and asset allocation strategies do not assure profit or protect against loss. Indices mentioned are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Sterling Edge Financial LLC. are not affiliated.