PNC Wealth Management President and CEO Rich Guerrini discusses how a securities-based line of credit (SBLOC) can help investors access liquidity without disrupting a long-term investment strategy, as well as the opportunities and risks investors should consider before borrowing against their portfolios.

As wealth grows, financial decisions often become more complex. For many investors, most wealth is invested rather than held in cash, creating liquidity challenges when funds are quickly needed.

Whether funding a home renovation, purchasing real estate, pursuing a business opportunity, or addressing a short-term liquidity need, many investors assume they need to sell investments to access cash.

In some situations, that may be the right answer. In others, borrowing against a portfolio through a securities-based line of credit (SBLOC) may help preserve the integrity of a long-term financial plan while providing the liquidity needed today.

An experienced financial advisor, guided by a thoughtful and carefully constructed financial plan, can help determine when a SBLOC may make sense, when it may not, and how to use it effectively while keeping the broader financial plan intact.

How a Securities-Based Line of Credit Works

Many affluent investors have substantial assets but limited readily available cash. When a significant expense or opportunity arises, selling investments may generate capital gains taxes, disrupt asset allocation, or reduce exposure to future market growth.

A SBLOC allows investors to borrow against eligible assets in their investment portfolio without selling the underlying securities. As a revolving line of credit, it provides flexible access to cash while allowing investments to remain part of a long-term strategy. Because the loan is secured by investments, borrowing terms may differ from unsecured lending options.

SBLOCs are often used to address short-term liquidity needs, fund major purchases, or serve as a source of readily available borrowing capacity. As a non-purpose loan, proceeds may be used for many personal or business needs, but typically cannot be used to purchase, carry, or trade securities.

The amount available to borrow depends on the type and value of the assets pledged as collateral, which are typically held in eligible taxable investment accounts rather than retirement accounts.

When Borrowing Against Your Portfolio May Make Sense

Securities-based lending is not a one-size-fits-all solution. However, it can be an effective planning tool in several scenarios.

Bridging a short-term liquidity need

A common use case is when an investor needs cash today but expects funds in the near future.

For example, someone may be waiting for proceeds from the sale of a business or property, an annual bonus, or another expected source of funds. Rather than selling investments, SBLOCs may provide temporary financing until those funds arrive.

Funding major purchases or opportunities

Real estate purchases, business investments, or other large expenditures may arise when market conditions are favorable.

In these situations, a SBLOC may provide flexibility and speed while allowing the investor to keep their investments intact. Securities-based lending is commonly used for purposes such as real estate financing, business financing, tax obligations, education expenses, and other significant purchases.

Avoiding unnecessary liquidation

Selling investments to raise cash can disrupt a long-term strategy and create unintended tax or market consequences.

Beyond potential taxes, investors may find themselves out of the market during periods of strong performance. A SBLOC may help maintain exposure to long-term growth opportunities while addressing immediate cash needs.

When Borrowing Against Your Portfolio May Not Make Sense

Securities-based lending can be a valuable tool, but it is not appropriate for every situation.

Long-term spending needs

Using borrowed funds for ongoing lifestyle expenses warrants careful consideration. A SBLOC may be more effective as a source of strategic, temporary liquidity than as a permanent solution to recurring cash-flow challenges.

For long-term spending needs, selling assets or pursuing other financing options may be more appropriate.

When market volatility would create discomfort

Borrowing capacity is tied to the value of the pledged investments. If the value of pledged securities declines, the lender may require additional collateral or repayment of a portion of the loan. If those requirements are not met, the lender may sell the pledged securities, potentially on short notice and without advance consultation regarding which assets are sold.

Investors who are uncomfortable with those possibilities may prefer other sources of financing.

When rising borrowing costs could be a concern

While SBLOCs often offer competitive borrowing rates, they typically feature variable interest rates and may involve interest-only payments. As interest rates change, borrowing costs can increase, potentially affecting cash flow and the overall cost of financing.

Investors should understand how rate fluctuations could affect their repayment strategy before establishing a SBLOC.

When repayment is unclear

As with any borrowing strategy, there should be a clear understanding of how the debt will be managed and repaid.

SBLOCs should be evaluated within the context of a comprehensive financial plan, not simply because borrowing capacity exists.

Why Professional Guidance Matters

Effective use of securities-based lending often involves guidance from banking, lending, and wealth management professionals who understand the client's broader financial picture.

A financial advisor can help evaluate questions such as:

  • Is borrowing more advantageous than selling securities?
  • What are the potential tax considerations?
  • How does the loan affect overall cash flow?
  • How might different market scenarios affect the pledged portfolio?
  • Does the strategy support long-term financial goals?

SBLOCs are more than a lending solution. They are a financial planning decision that should be evaluated within the context of an investor's broader goals.

A Tool, Not a Shortcut

Accessing cash doesn't always require selling investments. For some investors, a securities-based line of credit can provide liquidity while preserving a long-term investment strategy.

But like any financial tool, it should be used intentionally, with a clear understanding of both its benefits and its risks.

When incorporated into a comprehensive wealth strategy and guided by experienced financial advisors, borrowing against a portfolio may help investors pursue today's opportunities without losing sight of tomorrow's goals.