For that executive, or any investor hoping to maintain a long-term investment strategy by borrowing against the value of their eligible assets, a benefit of securities-backed line of credit is that “you keep your investment strategy intact with the asset allocation you’ve chosen,” says Trisha Knake, Head of SBL & Accounts Product Management for UBS. You meet a temporary liquidity need and continue to pursue your long-term goals.
A securities-backed line of credit should not, however, be confused with margin account. While both use investment assets as collateral, a securities-backed line is a "non-purpose" loan, which means it can be used for any purpose except buying, carrying or trading securities. On the other hand, a margin account is considered a "purpose" loan and may be used to purchase securities.
Interest rate advantages
Because a securities-backed line of credit is a LIBOR-based loan, it may offer lower interest rates than a conventional loan tied to the Prime rate, Knake adds. And while applying for a bank loan could take weeks to process, “you can generally get a decision on a securities-backed line of credit in a few days,” Knake adds.
It all starts with a conversation
Your UBS Financial Advisor and your tax specialist can help in the review of flexible financing options. Despite the potential advantages of a non-purpose securities-backed line of credit, borrowing against securities (as with any type of borrowing) entails risks that you should consider carefully. A securities-backed line of credit may allow you to keep your investments on track even as you meet short-term liquidity needs.
Discuss your financial situation and your long- and short-term goals with your UBS Financial Advisor.