Liquid asset secured financing is a line of credit secured by eligible assets in one or more of your investment accounts.
“In essence, your investment portfolio is used as collateral against a loan,” says Cindy Luckman, senior vice president and managing director for U.S. Bank Wealth Banking Services. “In a volatile market environment, it becomes more important to not have to liquidate investment assets. This type of financing offers greater liquidity and overall financial flexibility.
How to use your assets as cash
Liquid asset secured financing requires no personal financial statement or tax returns for loans up to $5 million. It offers both consumer and commercial clients attractive interest rates and flexible repayment of principal. In addition, liquid asset secured financing features a streamlined application, expedited approval process and on-demand access to available funds.
You can use the cash to meet a wide range of financial needs:
- Pay taxes
- Manage short-term cash flow
- Quickly finance special purchases
- Serve as a bridge loan
- Refinance higher interest rate debt
Because this line of credit offers you flexibility and liquidity, it can be particularly useful when you’re presented with a sudden financial opportunity or challenge. In addition, the line of credit may give you better control over your finances.
As an example, you may need cash to close on a new home, but your portfolio is down due to market volatility. You don’t want to have to sell securities at a loss so instead take out a line of credit secured by your portfolio to generate the cash needed.
Or, if you’re a small business owner that needs cash to temporarily cover payroll and other expenses, you can take out a line of credit secured by your business or personal portfolio. “Even nonprofit organizations are putting these types of loans into place,” Luckman says.
For example, in years when donations and grants are not adequate, a nonprofit may have difficulty lining up the timing of projects. Rather than liquidating endowment funds or pursuing more expensive financing to cover operating expenses, a nonprofit can use a portion of the endowment fund as collateral without disrupting overall investment objectives.
Considerations with liquid asset secured financing
Like most lending options, liquid asset secured financing requires a loan application and underwriting. Additionally, a drop in the value of pledged securities could result in a margin call; if this happens, you may be forced to deposit more money or sell securities at a loss to bring the account up to the minimum value. A downward market fluctuation could also cause the loan to become due earlier than planned.
Luckman says, “We monitor the market daily, so if fluctuation occurs, it would be detected immediately. We’d then work with you to resolve the situation and bring the account back into margin as soon as possible.”
Know your options
Your banker can help you determine if liquid asset secured financing is right for you.
“We show clients a number of options that may help prepare them for these types of situations,” Luckman says. “With the economic uncertainty and low interest rate environment we find ourselves in, providing clients access to cash without disrupting their investment goals is important.