Is your business short of cash?

If so, you may want to explore some flexible options.

Just as your company seems poised to prosper, lack of funds for equipment, new workers, raw materials or even an unexpectedly large tax bill could cause it to stumble. One 2016 study from CB Insights showed that cash shortages account for 29% of all start-up failures.1

Key takeaways:

  • Access to cash is one of the key challenges small businesses face.
  • Using your personal eligible investments as collateral could help you obtain a line of credit to meet your needs.
  • Applying for a securities-backed line of credit is relatively easy and most credit decisions are received within a few business days.
  • 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.
  • Borrowing against securities is not without risks, so be certain you have a solid business plan in place and understand all of the risks.
  • Ask your UBS Financial Advisor, your accountant and other experts if a securities-backed line of credit is a good option that is appropriate for your situation.

Tapping the power of your portfolio

One possible liquidity source might be your personal investments. Yet selling off a portion of a portfolio may disrupt your long-term financial strategy. An alternative to discuss with your UBS Financial Advisor could involve using those eligible investments as collateral for a line of credit that offers access to cash when you need it.

“It’s easy to apply,” says Trisha Knake, Head of SBL & Accounts Product Management at UBS. “Most credit decisions come within two to three business days, there are no fees* to establish a credit line and typically interest rates are lower than on traditional bank loans.”

Flexible options

Unlike a one-time loan taken out for a specific purpose, a non-purpose securities-backed line of credit can provide a steady source of funds that allows you to borrow what you need when you need it. There are no interest or fees until you use it, and you can be prepared for unexpected liquidity needs.

Repayment methods tend to be flexible as well, Knake adds. Some clients opt to make recurring monthly interest payments systematically. Others may tie repayment to a future cash flow event and capitalize the interest. In addition, clients may opt to lock in the interest rate for up to 10 years. Fixed-rate contracts can help diversify interest rate risk; however, they are subject to prepayment fees. “Selecting the right repayment schedule and loan type really depends on the client's need,” Knake says. You and your UBS Financial Advisor can discuss which option might best serve you and your wealth management plan.

“Selecting the right repayment schedule and loan type really depends on the client's need.” - Knake

Be informed

A securities-backed line of credit may address your business liquidity needs, but it’s important to consider all your options and to understand the unique risks.When using debt strategically and opportunistically, you must maintain sufficient assets that you can easily convert into cash to retire your debt, particularly debt that is subject to a margin call. In the instance of a margin call, you may be asked to pledge additional assets or pay down a portion of the loan. Or, your assets could be sold to cover the outstanding balance. Another risk associated with market performance could be that interest on the loan could outpace your portfolio returns.

Speak with your UBS Financial Advisor

Just as important as a solid business plan is making sure that borrowing using personal investments is a good fit with your overall financial goals. Your UBS Financial Advisor, your accountant and other experts can help you work through the various advantages and risks.

Disclosures