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Not Insured by FDIC or Any Other Government Agency
Not Bank Guaranteed
Not Bank Deposits or Obligations
May Lose Value
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Benefit From Your Portfolio

Access a line of credit, using your securities as collateral.

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What Is Securities Based Lending?

Securities Based Lending (SBL) allows individuals to access a line of credit using the securities in their investment portfolio as collateral. It has several obvious benefits: quick access to cash, rates typically lower than credit cards, personal loans, or HELOCs, and the ability to keep your investment portfolio intact. The practice, also known as Asset-Based Lending, has grown in availability and popularity in recent years.

How Does Securities Based Lending Work?

You work with your bank or brokerage house to review your portfolio. Not everything in your total portfolio can be used as collateral—for example, any retirement accounts are ineligible. However, many stocks, bonds, ETFs, and mutual funds qualify. The institution you're working with will tell you how large your line of credit is, based on the underlying value of your eligible securities, among other factors.

Once you fill out the appropriate paperwork, and move the eligible securities to a dedicated account, you'll gain access to a revolving line of credit. When you access your line of credit, you'll pay a floating rate, often tied to Secured Overnight Financing Rate (SOFR) or Prime plus points. Your required payments are interest-only and are typically billed monthly, though they are typically calculated daily.

Provided you make your monthly interest payments and you maintain the value of the securities in your portfolio, you'll typically not have a set due date to repay the funds you withdrew. But, you can repay the funds you used as soon as you like. This gives you substantial flexibility.

What Are Some Advantages of Securities Based Lending?

This tool, also known as a Securities-Backed Line of Credit (SBLOC), can be very powerful. It allows the user to deploy cash in a nimble fashion—on short notice and at a favorable rate compared to other quick-credit options. The benefits include:

Access to Cash in Days. Once you have your line of credit set up, you can draw funds within a few days, which is a much faster timeline than a typical loan application. Some people set it up before they know they’ll need it, so that they can take advantage when the time is right. 

Flexibility on Repayment. Required repayments are interest-only, and there’s typically no set due date on paying back principal—and no prepayment penalty.

Your Portfolio Remains Intact. When you use a Securities Backed Line of Credit, you continue to benefit from the dividends and possibility of growth in your portfolio, and you have not triggered a taxable event.

Limited Scrutiny on How You Spend. You cannot use Asset-Based Lending to buy other securities. However, that is generally the only limitation. You can use the funds for luxury items, purchasing real estate, college tuition—the choice is yours.

Why Would I Use Securities Based Lending?

There are several common examples of when Securities Based Lending makes sense. These can illustrate the value that SBLOC offers.

Avoid Triggering a Tax Payment. The capital gains tax can be as high as 20% for some individuals. When you draw on your Securities Backed Line of Credit, you’re not taxed. Provided your borrowing rate is lower than the capital gains tax, you’ll come out ahead that year—and keep the securities you’re invested in.

Bridge Loans. Because of the flexible nature of the line of credit, the comparatively low interest rate, and the ability to repay funds when you need, Asset Based Lending may be an ideal solution for a bridge loan. 

Tuition. If your family does not qualify for federally backed student aid, but you have limited appetite to sell a portion of your portfolio to fund your child’s college education, an SBL solution may be a good fit.

Unexpected Expenses or Opportunities. Because you can access cash within days, this solution gives you quick coverage for everything from unexpected medical expenses to sudden business opportunities.

Real Estate Purchases. You gain the opportunity to make an all-cash offer on a home. That gives you a leg up on other buyers, allows you to leverage your portfolio without selling securities, and the rate is typically comparable to that of a mortgage. 

Business Start Up. Business loans require time, lots of paperwork, and heavy scrutiny. They also have limitations on how you spend. A Securities Backed Line of Credit gives you the ability to start your business how you like.

Luxury Items. Dreaming of a corvette? Or considering a sailboat or a hobby aircraft? You can make the purchase as you like, without applying for a dedicated loan. 

Is It Worth Setting Up a Securities Based Lending Account Just in Case?

While applying for a SBL account typically takes less time than applying for a business loan or a mortgage, it still may make sense for you to open one now, just in case. For example, if you’re a car collector, having access to funds within days may be helpful. Or, if you’re in the market to purchase a vacation home, you never know when you’ll find the one you want. 

That said, each situation is unique. Before filling out an application, you should have a conversation with your advisor to discuss your long-term goals.

What Are the Downsides of a Securities Backed Line of Credit?

Margin Calls. Also known as a maintenance call, a margin call works like this: if your portfolio drops below a certain threshold, there may not be enough collateral in your portfolio to cover the funds you’ve drawn. In this instance, you’d be asked to make up the difference within a few days, or your institution may sell some of your securities to cover the collateral shortfall. If the institution does sell some of your funds, this may trigger capital gains taxes. 

The Risk of a Variable Rate. The rate on an SBL line of credit is usually calculated daily. If rates rise, so does the cost of borrowing—and it can do so quickly. In contrast to a product like a traditional mortgage, which protects you with a fixed rate, there’s no assurance that your rate will remain the same throughout your repayment period.

Your Securities Are Collateral. Your securities will be placed in a dedicated account. While you can trade and sell them as you like, within certain guidelines, ultimately the institution that extended the line of credit has the power to sell your securities, if they need to obtain funds to recoup the value of their loan to you. Before you set up a Liquid Asset Secured Financing solution, be sure you understand what you’re committing to.

Potential for Unexpected Taxes. If your institution were to sell your securities to make up a shortfall, you would be on the hook for any capital gains taxes.

Hard to Change Institutions. Once you’re drawing on your line of credit through a Securities Based Lending account, you usually can’t move your portfolio until you pay back your loan. This means that if you want to make a change in your financial institution, that may not be possible, or may involve extra complications.

Could Undermine Your Long-Term Goals. A Securities Backed Line of Credit can be a useful financial tool, but with such efficient borrowing comes a certain level of temptation. If not used strategically, a SBLOC can hollow out the solidity of your long-term financial goals.

Our SBL Conclusion: With Power Comes Responsibility

In the right scenario, borrowing on your portfolio may make a lot of sense. The collateral is already with the financial institution that’s offering you the line of credit, you will likely qualify for a competitive rate, and you’ll get easy, quick access to funds. Plus, with Asset Based Lending, your portfolio stays intact, and you avoid triggering a taxable event.

The benefits are clear. The main downside is the risk of a potential margin call, should your portfolio drop in value while you’re making use of a substantial portion of your line of credit. There is also a very real psychological risk: such a useful tool may not feel like debt. Much like a credit card, uncareful users may spend at a level they later regret.

As a result, we recommend talking in detail to your financial advisor about this solution. While it may make sense for you, it pays to know exactly how and why you’ll use a Securities Based Lending solution as part of your overall financial plan.

Securities-based loan products are underwritten and provided by Old National Bank. Member FDIC/Equal Housing Lender. Subject to credit approval. Rates are subject to change daily.

Credit products are offered by Old National Bank and subject to normal credit approval. Property insurance is required for all loans secured by real estate. Rates are subject to change daily. Contact your Old National Private Banker or Residential Lender for current loan rates.

Subject to credit approval. In order to qualify for a Securities Based Secured Private Elite Line of Credit, the applicant(s) must meet all of the requirements to be designated a Private Elite or Private Prestige Private Banking client and be serviced by a Private Banking officer. Max APR is 21%. Balloon payment may be required to pay this loan in full. Minimum monthly payment equal to the interest that accrued on the outstanding balance during the preceding billing cycle. Other restrictions may apply. Contact an Old National Private Banker for details. Marketable securities may be held with Old National Investments, Old National Wealth Management or 1834.

Old National Wealth Management is the umbrella marketing name/logo for wealth-related services, including Old National Investments, Old National Private Banking and 1834 services. Old National Wealth Management, Old National Private Banking, and 1834 are not affiliated with LPL Financial.

1 Old National Investments: Your Bank (“Financial Institution”) provides referrals to financial professionals of LPL Financial LLC (“LPL”) pursuant to an agreement that allows LPL to pay the Financial Institution for these referrals. This creates an incentive for the Financial Institution to make these referrals, resulting in a conflict of interest. The Financial Institution is not a current client of LPL for brokerage or advisory services. Please visit https://www.lpl.com/disclosures/is-lpl-relationship-disclosure.html for more detailed information.

Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC.). Insurance products are offered through LPL or its licensed affiliates. Old National Bank and Old National Investments are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Old National Investments, and may also be employees of Old National Bank. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, Old National Bank, Old National Private Banking or Old National Investments. Securities and insurance offered through LPL or its affiliates are:

Not Insured by FDIC or Any Other Government Agency Not Bank Guaranteed Not Bank Deposits or Obligations May Lose Value

The LPL Financial registered representative(s) associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.

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2 Old National Private Banking: Credit products offered by Old National Bank and subject to normal credit approval. Deposit products are offered by Old National Bank. Equal Housing Lender. Member FDIC. Old National Bank is not responsible for and does not guarantee the products, services, or performance of Old National Investments or 1834.

3 1834: Investment instruments utilized by 1834 are not insured by the FDIC nor any other government agency, are not deposits or other obligations of 1834, Old National Wealth Management, Old National Bank, its parent company or affiliates, and involve investment risk including the possible loss of principal invested.