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Instead, they are suggesting clients borrow against their portfolios and take out a securities-based line of credit (SBLOC), loans that use stock, bond and mutual funds already owned in the brokerage firm's accounts as collateral.
To borrowers, securities-based lending, also known as non-purpose lending, might seem like a perfect solution.
It's fast, easy and often comes at rates lower than traditional bank loans.
But as some borrowers learned during the housing crisis, borrowing against potentially volatile assets can give rise to significant risks.
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Securities-based loans allow an investment firm to extend an investor a line of credit without selling the assets backing the loan, much as the once popular home equity line of credit (HELOC) allowed banks to extend credit to homeowners without touching the underlying home.
The number of investment firms offering securities-based loans has soared in recent years, capturing the attention of regulators, including the Financial Industry Regulatory Authority, concerned about how they are marketed and used.
Also ask your investment firm what additional fees are associated with the loan, including early termination fees, late repayment fees, and anything that might be charged for liquidating securities in the event of a default.
Furthermore, you can plan to borrow the smallest percentage possible, even if the lender is offering to give you more.
If there's a decline in the value of the securities collateralizing a loan, lenders can demand that borrowers put up more collateral on short notice.