What a securities-backed line of credit is (and isn’t)?

A securities-backed line of credit (SBLOC) is a form of financing that allows startups to borrow money using their investment portfolio as collateral. The collateral typically consists of money market funds, US Treasury Bills, and other securities held in the borrower's treasury management account. SBLOCs are commonly offered by banks and brokerage firms, that also hold the underlying investments in their custody.

How much money do you need for an SBLOC?

An SBLOC typically requires a minimum investment portfolio of around $100,000, though some lenders may require more. The exact amount depends on the institution and the types of securities you hold.

Is it good to have a secured line of credit?

A secured line of credit can be good because it often offers lower interest rates and flexible access to cash. However, it carries risk since the collateral—like your investments—can be affected if you can't repay.

What is the difference between a HELOC and an SBLOC?

A HELOC is a credit line secured by your home, while an SBLOC is secured by your investment portfolio. HELOCs use real estate as collateral, whereas SBLOCs rely on marketable securities.

What is the downside to securities lending?

The downside to securities lending is the risk that the borrower may default, or that market volatility could reduce the value of your collateral. It also exposes you to operational risks and potential delays in accessing your securities.

What are the drawbacks of SBLOC?

Drawbacks of SBLOCs include the risk of a margin call if your portfolio value drops, which may force you to repay quickly or sell investments at a bad time. Interest costs and restrictions on what you can use the funds for are also common concerns.