Editor’s Note: SBLOCS is provided by Member FDIC from NA’s Bancorp Bank to Betterment clients. The improvement is not the bank. Please see below.
In life, despite the best plans, you need to get quick access to cash. Let’s say you need to close the gap until you buy a new home and sell the old one. Or, smart business opportunities present themselves.
If you have a substantial amount of investment in your taxable account, you can take advantage of them. Credit Line for Securities Support (SBLOC)little-known, but increasingly available form of short-term loans.
Unlike many traditional loans, SBLOCs usually provide access to the line immediately after approval. And importantly, They will continue to invest your assets Avoid capital gains tax triggers1. If the market drops, that means avoiding locking up these losses. And if the market rises, that growth will help offset some of the loan costs.
There is more details about this type of borrowing, so keep reading to learn more.
Basics of SBLOC borrowing
SBLOC is a revolve credit line that can be used over and over again, in contrast to the old nature of many loans. Many lenders require at least six figures of taxable investment to qualify for one. Credit limits often fall in risk from 50% to 95% of the value of your investment.
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Betterment SBLOC with Bancorp |
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Minimum assets required |
Approximately, $150,000 below taxable assets, depending on the risk profile2 |
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Maximum credit/loan available |
Approximately 50-95% of taxable assets2depending on the risk profile |
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interest rate |
Variation rate3 Based on committed assets |
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Repayment options |
flexible |
As mentioned above, one of the key benefits of SBLOCS is that it gives taxable assets the opportunity to grow while still being invested. SBLOCs are more versatile than many loans, but one notable exception is that they cannot be used to buy more securities or fund margin loans.
In addition to versatility, they tend to offer competitive interest rates lower than interest rates on personal loans or credit cards. Our bank partner Bancorp has a floating interest rate associated with SBLOC Wall Street Journal Prime Rate Discount based on the amount of committed taxable assets4.
However, short-term loans carry risks. Talking to an advisor can help you weigh risks compared to your specific situation. That’s primarily why SBLOC is offered through the premium tier at Betterment. This gives you unlimited access to your advisor team.
When an invoice is due (and how)
SBLOCS offers relatively flexible collection conditions, with many people requiring monthly interest payments, while some (like Bancorp) offer the option of adding interest to their loan balances rather than paying them immediately. This is known as “uppercase” of interest.
If the value of your investment drops sufficiently, remember that lenders will need to create what is called a “maintenance call” and reposition the portfolio to get higher borrowed power, provide additional collateral, sell some of the assets and pay the applicable capital tax.1.
Conclusions to borrow this way
If you’re looking for quick access to capital without disrupting your investment strategy, SBLOC might be the right choice.
And if you come to that conclusion, we and our trusted bank partner, Bancorp, will help you here. They were the first bank to provide SBLOCs to independent advisors in 2004, expanding access to this type of borrowing. And their simple application process will generally provide a quick turnaround and help fund today’s plans without experiencing tomorrow’s dream.
