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SBLOC: extra cash by borrowing against assets

Artful Dodger

"Ducimus, lit"
Aug 9, 2018
9,025
113,747
Canada
Some perspective: in 2016 I sold 200 pre-split shares (now 1000) to for a downpayment on my model s. This year it is going to become a million dollar car. HODL
SEC.gov | Investor Alert: Securities-Backed Lines of Credit

What Are SBLOCs?

SBLOCs are loans that are often marketed to investors as an easy and inexpensive way to access extra cash by borrowing against the assets in your investment portfolio without having to liquidate these securities. They do, however, carry a number of risks, among them potential unintended tax consequences and the possibility that you may, in fact, have to sell your holdings, which could have a significant impact on your long-term investment goals.

How Do SBLOCs Work?

SBLOCs are non-purpose loans, which means you may not use the proceeds to purchase or trade securities. However, an SBLOC still provides a fair amount of flexibility when you consider the restrictions on other types of loans, such as a mortgage or auto loan, or borrowing on margin. Those types of loans all require that loan proceeds be used for a specific purpose. Money from an SBLOC can be used to finance virtually anything you might want, from home renovations and real estate purchases, to personal travel or a new business venture. They also can be used, for example, to fund education expenses or to pay an unexpected tax bill.

But remember: The fact that you might be eligible for an SBLOC doesn’t mean the loan is necessarily a good idea. And be aware that SBLOCs are just one type of securities-based lending offered to investors. Other types include margin and stock-based loan programs.​

The quoted passages above are just a part of a much longer, more detailed article at the link above. They emphasize the benefits and risks of SBLOC (Securities-Backed Lines of Credit) loans, while providing links to alternative methods of financing.

IMO, makes sense to explore these finacial options before selling a fast-appreciating asset like TSLA.

Cheers!
 

Prunesquallor

His cardinal virtue? An undamaged brain.
Dec 19, 2018
3,206
33,829
Houston/Galveston
SEC.gov | Investor Alert: Securities-Backed Lines of Credit

What Are SBLOCs?

SBLOCs are loans that are often marketed to investors as an easy and inexpensive way to access extra cash by borrowing against the assets in your investment portfolio without having to liquidate these securities. They do, however, carry a number of risks, among them potential unintended tax consequences and the possibility that you may, in fact, have to sell your holdings, which could have a significant impact on your long-term investment goals.

How Do SBLOCs Work?

SBLOCs are non-purpose loans, which means you may not use the proceeds to purchase or trade securities. However, an SBLOC still provides a fair amount of flexibility when you consider the restrictions on other types of loans, such as a mortgage or auto loan, or borrowing on margin. Those types of loans all require that loan proceeds be used for a specific purpose. Money from an SBLOC can be used to finance virtually anything you might want, from home renovations and real estate purchases, to personal travel or a new business venture. They also can be used, for example, to fund education expenses or to pay an unexpected tax bill.

But remember: The fact that you might be eligible for an SBLOC doesn’t mean the loan is necessarily a good idea. And be aware that SBLOCs are just one type of securities-based lending offered to investors. Other types include margin and stock-based loan programs.​

The quoted passages above are just a part of a much longer, more detailed article at the link above. They emphasize the benefits and risks of SBLOC (Securities-Backed Lines of Credit) loans, while providing links to alternative methods of financing.

IMO, makes sense to explore these finacial options before selling a fast-appreciating asset like TSLA.

Cheers!
Great find. Not really anything unexpected. Main risk is the equivalent of a margin call. They always state that the loan can’t be used for equities purchases, but I don’t see how, in practice, that is enforceable. Once the loan is ACHed to your bank account, there's nothing preventing you from ACHing any or all of it right into your brokerage account, essentially laundering it.
 

2daMoon

Mostly Harmless
Nov 25, 2020
761
5,565
Terra
SEC.gov | Investor Alert: Securities-Backed Lines of Credit

What Are SBLOCs?

SBLOCs are loans that are often marketed to investors as an easy and inexpensive way to access extra cash by borrowing against the assets in your investment portfolio without having to liquidate these securities. They do, however, carry a number of risks, among them potential unintended tax consequences and the possibility that you may, in fact, have to sell your holdings, which could have a significant impact on your long-term investment goals.

How Do SBLOCs Work?

SBLOCs are non-purpose loans, which means you may not use the proceeds to purchase or trade securities. However, an SBLOC still provides a fair amount of flexibility when you consider the restrictions on other types of loans, such as a mortgage or auto loan, or borrowing on margin. Those types of loans all require that loan proceeds be used for a specific purpose. Money from an SBLOC can be used to finance virtually anything you might want, from home renovations and real estate purchases, to personal travel or a new business venture. They also can be used, for example, to fund education expenses or to pay an unexpected tax bill.

But remember: The fact that you might be eligible for an SBLOC doesn’t mean the loan is necessarily a good idea. And be aware that SBLOCs are just one type of securities-based lending offered to investors. Other types include margin and stock-based loan programs.​

The quoted passages above are just a part of a much longer, more detailed article at the link above. They emphasize the benefits and risks of SBLOC (Securities-Backed Lines of Credit) loans, while providing links to alternative methods of financing.

IMO, makes sense to explore these finacial options before selling a fast-appreciating asset like TSLA.

Cheers!

Running a search my regional bank's website indicates they offer SBLOC loans. I plan to follow up to learn more, and then, perhaps shop around for the best rate.
 

st_lopes

Member
Aug 3, 2020
392
3,866
Canada
Great find. Not really anything unexpected. Main risk is the equivalent of a margin call. They always state that the loan can’t be used for equities purchases, but I don’t see how, in practice, that is enforceable. Once the loan is ACHed to your bank account, there's nothing preventing you from ACHing any or all of it right into your brokerage account, essentially laundering it.

The asset backed loans from Canadian banks can be reinvested. In fact, most of the banks will allow you to reinvest, reloan, reinvest, reloan up to 2x your original asset value. Non reinvested loans are instead capped at ~70% of asset value. All at prime or sub prime rates.

Only caveat is that the asset account and any accounts you invest in to must become pledged/collateral and you can no longer hold any options positions (bought or sold) in those accounts.
 

EL0NTRK

Member
Oct 16, 2016
104
107
Texas
Running a search my regional bank's website indicates they offer SBLOC loans. I plan to follow up to learn more, and then, perhaps shop around for the best rate.
I am doing the same for a real estate purchase and have found a couple of big banks, brokers that offer this.
For assets that over 1M, you can have rates in the 2% apr from Fidelity and Wells Fargo.
My criteria besides the low rates is that they have a clear policy on maintenance call i.e they allow you time to provide more assets or pay down instead of liquidate your portfolio without warning like IBKR seems to do on their margin loans.
 

Unpilot

Sell order in at $5999.99
Dec 2, 2017
4,860
37,503
A Coast
SEC.gov | Investor Alert: Securities-Backed Lines of Credit

What Are SBLOCs?

SBLOCs are loans that are often marketed to investors as an easy and inexpensive way to access extra cash by borrowing against the assets in your investment portfolio without having to liquidate these securities. They do, however, carry a number of risks, among them potential unintended tax consequences and the possibility that you may, in fact, have to sell your holdings, which could have a significant impact on your long-term investment goals.

How Do SBLOCs Work?

SBLOCs are non-purpose loans, which means you may not use the proceeds to purchase or trade securities. However, an SBLOC still provides a fair amount of flexibility when you consider the restrictions on other types of loans, such as a mortgage or auto loan, or borrowing on margin. Those types of loans all require that loan proceeds be used for a specific purpose. Money from an SBLOC can be used to finance virtually anything you might want, from home renovations and real estate purchases, to personal travel or a new business venture. They also can be used, for example, to fund education expenses or to pay an unexpected tax bill.

But remember: The fact that you might be eligible for an SBLOC doesn’t mean the loan is necessarily a good idea. And be aware that SBLOCs are just one type of securities-based lending offered to investors. Other types include margin and stock-based loan programs.​

The quoted passages above are just a part of a much longer, more detailed article at the link above. They emphasize the benefits and risks of SBLOC (Securities-Backed Lines of Credit) loans, while providing links to alternative methods of financing.

IMO, makes sense to explore these finacial options before selling a fast-appreciating asset like TSLA.

Cheers!
Those won't work if the funds are in a IRA as the IRS won't let you use a IRA as collateral.

Would love for someone to prove me wrong!
 

2daMoon

Mostly Harmless
Nov 25, 2020
761
5,565
Terra
I am doing the same for a real estate purchase and have found a couple of big banks, brokers that offer this.
For assets that over 1M, you can have rates in the 2% apr from Fidelity and Wells Fargo.
My criteria besides the low rates is that they have a clear policy on maintenance call i.e they allow you time to provide more assets or pay down instead of liquidate your portfolio without warning like IBKR seems to do on their margin loans.

I can't find anything at Fidelity other than the Margin account. Even their Chat support folks couldn't find a non-trading SBLOC. I'm waiting on ignore (hold) at the moment to "speak to a representative" about it.

If you have their buzz-word for such a critter, please share. Thanks!

Edit: Fidelity rep tells me they do not offer non-investment SBLOCs. Only the Margin account.
 
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Opus BC fan

TSLA long since 2011
Dec 9, 2012
598
6,000
At Large
I can't find anything at Fidelity other than the Margin account. Even their Chat support folks couldn't find a non-trading SBLOC. I'm waiting on ignore (hold) at the moment to "speak to a representative" about it.

If you have their buzz-word for such a critter, please share. Thanks!

I went through Chase/JPMorgan. Some other banks I approached had no idea what I was talking about. The interest rate is variable based on the Libor plus a small add (so far <3%). You cannot use IRA funds.
 
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mrmage

Supporting Member
Jan 10, 2019
486
2,812
The Peninsula, CA
Houston based here as well and we are seriously looking into a SBLOC for a dream home that our income certainly won't qualify for a traditional mortgage based on the usual income/debt ratio.
I hold my TSLA with Vanguard so I wonder if you can recommend some broker/lender that can offer this loan?
I'm also looking for a mortgage broker that can offer a mortgage that we can use our stocks as collateral.

We’ve been looking at asset based loans aka asset depletion loans. These should be non recourse mortgages, with assets used just for approval.

The best rate so far was Wells Fargo which is half the rate of the mortgage brokers we contacted. All of them use liquid assets divided by length of loan in months to determine equivalent monthly income for purposes of loan qualification.

The catch for WF is they require a good sized deposit with them, discount your liquid assets by 30% for their calculations, and require a substantial down payment. Others like Sprout and HP are around 4-5% annually and a bit less stringent. Otoh, WF has no loan cap vs brokers that typically max out at $3m to 5m.

So if you have $10M of liquid assets like TSLA with a 30 year loan, zero debt, and excellent credit, that should qualify for a ballpark $1.5 to 2M loan with 25% down.
 
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mrmage

Supporting Member
Jan 10, 2019
486
2,812
The Peninsula, CA
I can't find anything at Fidelity other than the Margin account. Even their Chat support folks couldn't find a non-trading SBLOC. I'm waiting on ignore (hold) at the moment to "speak to a representative" about it.

If you have their buzz-word for such a critter, please share. Thanks!

Edit: Fidelity rep tells me they do not offer non-investment SBLOCs. Only the Margin account.

Not a SBLOC, but a mortgage that does this is an asset depletion loan. I posted above on this.
 

2daMoon

Mostly Harmless
Nov 25, 2020
761
5,565
Terra
Not a SBLOC, but a mortgage that does this is an asset depletion loan. I posted above on this.

The conversation, so far, wasn't about mortgage-backed depletion loans where the asset backing the loan is diminished.

SBLOC are loans on Stocks where the interest of the loan is outpaced by the growth of the security. The Gains cover the interest while the stock continues to grow in value. No asset depletion.

Besides, my landlord might frown upon me taking out a depletion loan on their house. :rolleyes:
 
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Unpilot

Sell order in at $5999.99
Dec 2, 2017
4,860
37,503
A Coast
Drawing money from your SBLOC is tax free, receiving a distribution from your IRA is taxed at ordinary income tax rate. Easy choice for me.
Drawing money from your SBLOC is tax free, receiving a distribution from your IRA is taxed at ordinary income tax rate. Easy choice for me.
Right...but if the vast bulk of money is in a IRA....then how do you get a SBLOC?
 

Nocturnal

Supporting Member
Aug 23, 2018
6,479
33,742
Deepening Crisis!
Right...but if the vast bulk of money is in a IRA....then how do you get a SBLOC?
Yeah that’s the crappy part. 90% of my assets in in some type of retirement account. It’s a shame I can’t directly borrow against it. LightStream gave me a personal loan for 100k recently with the understanding that I have plenty fo retirement assets to cover but that isn’t the same as collateral. The government really likes treating us like children with the side effect that it becomes harder to gain wealth. Assuming that is an accident...
 

reardencode

Supporting Member
Mar 9, 2019
235
876
Seattle, WA
The conversation, so far, wasn't about mortgage-backed depletion loans where the asset backing the loan is diminished.

SBLOC are loans on Stocks where the interest of the loan is outpaced by the growth of the security. The Gains cover the interest while the stock continues to grow in value. No asset depletion.

Besides, my landlord might frown upon me taking out a depletion loan on their house. :rolleyes:
You don't have to deplete the asset in an asset depletion loan. They calculate the qualification based on the assumption that you will.
 
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Hasbro1

Member
Sep 3, 2017
19
169
Ca
Selling for retirement is unnecessary. Just get a line of credit with the shares as collateral: 1) you don’t sell your shares so you don’t pay taxes 2) your shares continue to appreciate while you take from the line of credit, very likely they will appreciate much more than the low interest (I pay 2.2% at E*Trade) you pay over the principal balance.

SEC.gov | Investor Alert: Securities-Backed Lines of Credit

What Are SBLOCs?

SBLOCs are loans that are often marketed to investors as an easy and inexpensive way to access extra cash by borrowing against the assets in your investment portfolio without having to liquidate these securities. They do, however, carry a number of risks, among them potential unintended tax consequences and the possibility that you may, in fact, have to sell your holdings, which could have a significant impact on your long-term investment goals.

How Do SBLOCs Work?

SBLOCs are non-purpose loans, which means you may not use the proceeds to purchase or trade securities. However, an SBLOC still provides a fair amount of flexibility when you consider the restrictions on other types of loans, such as a mortgage or auto loan, or borrowing on margin. Those types of loans all require that loan proceeds be used for a specific purpose. Money from an SBLOC can be used to finance virtually anything you might want, from home renovations and real estate purchases, to personal travel or a new business venture. They also can be used, for example, to fund education expenses or to pay an unexpected tax bill.

But remember: The fact that you might be eligible for an SBLOC doesn’t mean the loan is necessarily a good idea. And be aware that SBLOCs are just one type of securities-based lending offered to investors. Other types include margin and stock-based loan programs.​

The quoted passages above are just a part of a much longer, more detailed article at the link above. They emphasize the benefits and risks of SBLOC (Securities-Backed Lines of Credit) loans, while providing links to alternative methods of financing.

IMO, makes sense to explore these financial options before selling a fast-appreciating asset like TSLA.

Cheers!

I recently opened a Cash Management Account (CMA) at Merrill Lynch secured by my TSLA shares as my equity line was becoming maxed out. The account is managed and has a $120 annual fee. I can borrow up to 65% of the share value. My adjustable interest rate is currently around 3.2% (based on LIBOR rate and total portfolio valuation).

The only firm requirement for the CMA is that you have to go through a Merrill advisor to trade. They "ask" that you not use the borrowed funds to purchase more securities but my primary account contact has admitted they have no real way of absolutely knowing what one does with the money. My loan is connected to my B of A checking and is set up for electronic transfers. Since opening the CMA, I have bought stocks through, including one TSLA share, through my pre-existing, original Merrill account and nothing has been said.

I'm set up for automatic interest-only monthly payments. Although I haven't taken advantage of the line yet, it will be used soon for a home improvement project and to pay capital gains tax due to being an idiot last May. We plan on a long overdue remodeling of our old kitchen next year and then possibly use the funds to make a full cash offer on a vacation property in 2022 (to be quickly cash-out financed). Otherwise, outside of home repairs I think we're good. Merrill will sell your account shares out from under you if your loan balance to portfolio value ratio exceeds 65% but I don't foresee that happening to us.

Note that while having a highly-leveraged HELOC (currently at 1.99%) and this new loan, I have a great pension, some social security income and my wife continues to work so we can handle the interest payments. Point being that the CMA works for us but might not be for everyone. At this time I have no plans to ever fully pay off the loans unless required or rates skyrocket and will let my TSLA heirs deal with the debt.

Big thanks to all forum members for the TSLA, and general investing and finances education I've received here over the past several years. A specific shout-out to mulder1231 who I believe was the OG of the LMA movement here.
 

StealthP3D

Well-Known Member
Dec 12, 2018
9,274
71,553
Maple Falls, WA
Yeah that’s the crappy part. 90% of my assets in in some type of retirement account. It’s a shame I can’t directly borrow against it. LightStream gave me a personal loan for 100k recently with the understanding that I have plenty fo retirement assets to cover but that isn’t the same as collateral. The government really likes treating us like children with the side effect that it becomes harder to gain wealth. Assuming that is an accident...

There's a reason for that. It's because most people don't really understand risk or know how to fully mitigate it. It goes back to what I've said many times on this forum - proven human nature is to discount the likelihood of bad things happening when those bad things have a low chance of happening. This is true even if the "bad thing" is disastrous. But investing is a long-term game so those bad things that are unlikely to happen tend to actually happen eventually. So humans are ill-equipped to make good decisions in this realm. The regulations are one way of mitigating the risk of disaster striking a lot of people at once. Because these types of events tend to compound the more people that are exposed to them.

"Yeah, but it probably won't happen so no real need to worry about it, right?" When adults think like this it's a good time to treat them like children. Because it's irrational from a statistical analysis perspective. Humans are bad at grasping this. These kind of events tend to give little to no warning - one day everything is peachy, the next day the disaster is already unfolding and it's too late to mitigate it.

Hindsight is 20/20. Foresight is imperfect at best. Elon is not perfect but he has excellent foresight, far beyond most humans because he has tamed and refined his thinking process beyond what most humans could ever attain. He still takes risks it's just that he understands them much better than most. The fact that government restricts wealth creation by restricting unlimited speculation by all is actually a good thing for everyone. Complaining about it makes one look very short-sighted. For similar reasons I'm opposed to short sellers being able to lend borrowed shares multiple times. If you want to speculate, do it with money that is really yours to speculate with.
 

ReddyLeaf

Active Member
Mar 19, 2014
1,628
2,597
WA State
Those won't work if the funds are in a IRA as the IRS won't let you use a IRA as collateral.

Would love for someone to prove me wrong!
I’m in this situation. All my TSLA are in IRAs, no pledged borrowing allowed, so no SBLOC for me. I have a smaller amount of funds outside of the IRAs, but they are for short-term use, emergencies, monthly living expenses, etc. and therefore in CDs, money markets, savings/checking accounts. I might be able to scrape together a spare $50K to buy TSLA, but that’s not really enough to bother getting a SBLOC on. Hmmm, maybe buy some LEAPS on a massive SP dip? I like having 2+ years of living expenses in cash, so that my IRAs are essentially 100% TSLA. It helps me HODL and sleep at night.
 

Mengy

Member
Feb 18, 2020
326
2,318
PA
I have to admit SBLOC's seem like a very favorable way to pay bills and such while maintaining shares rather than selling them, or at least selling a few shares now and then at very ideal times of my choosing to cover interest or payments.

My problem is all of my TSLA shares are with Vanguard (70% in IRA / 30% in brokerage account) who does not seem to offer securities lending. At least I can't find anything about it on their website.

I also have an investment account with TD Ameritrade but that is a much smaller account with "fun" money for minor trading, no TSLA there. TDA ironically does offer securities lending however, and not at bad rates either.

I might look into transferring my Vanguard brokerage TSLA shares over to my TDA account, I do believe that's possible?
 

2daMoon

Mostly Harmless
Nov 25, 2020
761
5,565
Terra
You don't have to deplete the asset in an asset depletion loan. They calculate the qualification based on the assumption that you will.

Maybe I'm misunderstanding this, but the loan referenced is against real estate rather than against investment securities, correct?

If not, please elaborate upon whether such a loan is one which allows for (non real estate) collateral to produce gains that cover and outpace the interest rate. While also allowing to not make payments on the principle.

If there is another type of loan available using TSLA shares as collateral, and that allows it to continue growing, I'd like to know more about it. :)
 
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