How liquid asset secured financing helps with cash flow

Liquid asset secured financing puts cash at your disposal for greater financial flexibility. Here’s how this investment strategy works.

Tags: Assets, Credit, Investments
Published: June 03, 2020

Have you ever thought of your investment portfolio as more than just securities and cash? If not, perhaps you should — especially during this time of high economic uncertainty and extreme market volatility.

You can leverage the assets in your portfolio by pledging them as security for a revolving line of credit. With this strategy — known as liquid asset secured financing — you can quickly and easily access cash for a wide range of purposes without having to liquidate your market positions.

Flexible financing secured by investment assets

Liquid asset secured financing is a flexible line of credit that’s secured by eligible assets in one or more of your investment accounts. Leveraging securities without liquidating investments can give you more flexibility to meet a wide range of financial needs and challenges.

“In the current market environment, it’s becoming more important to not have to liquidate investment assets,” says Cindy Luckman, senior vice president and managing director for U.S. Bank Wealth Banking Services. “Liquid asset secured financing provides clients with greater liquidity and overall financial flexibility.”

According to Luckman, client interest in liquid asset secured financing grew in the weeks after the coronavirus crisis sparked unprecedented market volatility. “With this tool, clients who need cash don’t have to be forced out of the market at a time when the value of their portfolio has declined,” she explains.

Alan Markarian, senior vice president and national manager of U.S. Bank Investment Advisor Services, gives an example: “Suppose a client needs cash to close on a new home next week, but her portfolio is down double-digits due to the recent market selloff. She believes the economic downturn will be short-lived and the market will bounce back, so she doesn’t want to have to sell securities at a loss.

“Liquid asset secured financing would allow the client to pledge the assets in her portfolio as collateral for a loan to generate the cash she needs, instead of selling securities at a loss,” he adds. “By leaving her portfolio intact, she can take advantage of a market rebound if and when one occurs.”

How can you use the cash from liquid asset secured financing?

You can use the cash you borrow to meet a wide range of financial needs. For example, Luckman says she has worked with clients recently who used liquid asset secured financing to accomplish the following:

  • A commercial real estate investor borrowed money to purchase and renovate an apartment building.
  • A small business owner borrowed money to meet working capital needs and cover payroll due to a sales slowdown caused by the coronavirus crisis.

“Another common strategy is using liquid asset secured financing as a bridge loan when buying a home,” says Luckman. “For example, you can borrow money to pay cash for the home and then convert to a mortgage later. This can be a smart strategy when mortgage interest rates are historically low like they are now.”

Paying estimated taxes, managing short-term cash flow, financing special purchases and refinancing higher-interest-rate debt are other reasons you might use liquid asset secured financing to generate cash.

Applying for a liquid asset secured financing line of credit is both fast and easy. Neither personal financial statements nor tax returns are required for credit lines up to $5 million. “We can sometimes get clients approved in a few days so they can move quickly to cover unexpected expenses or take advantage of opportunities,” says Luckman.

When talking to banks about liquid asset secured financing, Luckman suggests asking about setup fees, repayment terms and funds availability. “You want to have on-demand access to funds, and flexibility when it comes to repaying principal,” she says. 

Understand the potential risks of liquid asset secured financing

There are potential risks involved in a liquid asset secured financing investment strategy that it’s important to understand — especially during times of high market volatility. Specifically, a drop in the value of pledged securities could result in a margin call and the forced sale of securities at a loss.

Markarian says that when this occurs with a liquid asset secured financing line of credit at U.S. Bank, the bank works closely with clients to resolve the situation and bring the account back into margin with as little disruption to the portfolio as possible. 

“We realize that this situation can impact our clients’ financial and investment plans, so we don’t just start selling securities at random,” he says. “Instead, we communicate with our clients and their financial advisors to minimize the potentially negative financial impact on our clients.”

If you need cash to meet financial needs or capitalize on opportunities, consider leveraging, instead of liquidating, your investment portfolio with liquid asset secured financing. 

Contact us to learn more about how liquid asset secured financing could fit into your financial planning.

 U.S. Bank does not guarantee the products, services, or performance of its affiliates and third-party providers.
U.S. Bank Global Fund Services is a wholly owned subsidiary of U.S. Bank N. A. Custody and lending services are offered by U.S. Bank N.A. U.S. Bank Global Fund Services (Ireland) Limited is registered in Ireland with the Companies Registration Office Reg. No. 413707 and Registered Office: 24-26 City Quay, Dublin 2, Ireland. U.S. Bank Global Fund Services (Ireland) Limited is authorised and regulated by the Central Bank of Ireland under the Investment Intermediaries Act, 1995 U.S. Bank Global Fund Services (Guernsey) Limited is licensed under the Protection of Investors Law (Bailiwick of Guernsey), 1987, as amended by the Guernsey Financial Services Commission to conduct controlled investment business in the Bailiwick of Guernsey.