Securities Backed Line of Credit

Securities Backed Line of Credit

Whether you are seeking funds for a real estate purchase, tax bill, tuition payment — anything except the purchase of additional securities — the available balance on a Securities Backed Line of Credit is ready when you are, while your investments remain untouched to maintain your carefully crafted investment strategy.

Flexibility

Whatever the financial need, a Securities Backed Line of Credit provides you with access to available funds without disrupting your investments, investment strategies or asset allocations, and without creating unexpected tax consequences.

Convenience

Access your new Securities Backed Line of Credit with personalized checks or free wire transfers any time you need funds.

Here are answers to some frequently asked questions to help you understand and manage your accounts.

Securities Account Access Limits

Is trading permitted within the Securities Account that is being used as collateral for my SBLOC?

Yes, trading is permitted. Please be aware that major changes in the asset allocation of this account might reduce the amount available to borrow against the line of credit.

Can I continue to use my Securities Account check-writing privileges?

Generally, check writing associated with your Securities Account will be terminated when the account is pledged and your new SBLOC becomes available to you. With your new SBLOC you will be given specific checks to access available funds.

Can I request recurring distributions from my Securities Account?

Generally, preauthorized recurring distributions will be discontinued when the account is pledged and becomes the collateral for your SBLOC. In certain circumstances, distributions may continue – for instance, if the account holds sufficient value.*

A Securities Backed Line of Credit is designed to let you access the value of your investment portfolio without incurring tax conse- quences or resort- ing to credit cards.

Contact your Wealth Advisor for more details.

Can a distribution be made from my Securities Account to make an interest or principal payment on my SBLOC?

Yes, you may use your Securities Account for the payment, provided there is sufficient value to support the transaction.*

Credit Limit

How is the credit limit determined?

Credit limits are based upon the value and type of underlying collateral. The limit is determined by multiplying the collateral value by the “Advance Rate” associated with the security class. Note that the advance rate applies to individual securities and mutual funds falling within the specified asset class. Lines backed by portfolios allocated across asset classes will be assigned blended advance rates.

Asset ClassAdvance Rate
Equities50%
Investment-Grade Fixed Income80%
Treasuries90%
Cash and Equivalent100%

What would cause the credit limit on my SBLOC to be reduced?

Your credit limit will automatically be reduced if the borrowing power or “Advance Rate” value of your pledged Securities Account no longer supports the approved credit limit.

What if a security in the pledged account is no longer eligible to serve as collateral, or if while trading the account, I purchase an ineligible security?

Ineligible securities are automatically excluded from your Securities Account for collateral valuation purposes, and your credit limit is adjusted accordingly.

In certain circumstances, this could trigger a request for additional assets. If this occurs, the easiest way to resolve the issue may be to liquidate the ineligible security. Eligibility requirements are detailed on the following page.

What happens when the Securities Account loses value?

Depending on the relation between your account value, credit limit and amount borrowed, collateral devaluations may: (1) have no consequence; (2) limit your access to funds; or (3) require a deposit of additional assets or an immediate payment.

Provide an example of how collateral changes can affect my line of credit.

Suppose you hold a $1 million investment portfolio containing diversified equity and mutual fund securities. The Bank would be willing to lend up to $500,000, with your Securities Account pledged as collateral. Example A, on the following page, illustrates how the amount is determined by applying an “Advance Rate” to the assets in your account. In a rising market, you may remove assets exceeding the required $1 million collateral value. These assets may also be used to secure a larger line of credit (see Example B).

Conversely, as the collateral value declines, your borrowing power is reduced proportionally. When the collateral value falls from $1 million to $900,000, as in Example C, your credit limit is automatically reduced to $450,000. Please note that requests for funds (including checks you write) in excess of this amount will not be approved.

If the value declines significantly, you may be asked to place additional assets into the pledged account or to reduce your loan balance. This occurs when the line of credit balance reaches or exceeds the “Maintenance Rate,” shown in Example D.

*Consult your Wealth Advisor for details.

As a last resort, the Bank may liquidate your assets to repay the line of credit, if the collateral value continues to decline and you are unable to provide additional assets or reduce the outstanding line of credit balance. Liquidation is triggered when the line of credit balance reaches or exceeds the “Liquidation Rate,” as in Example E.

ExampleRate TypeRateMarket ValueCredit LimitAmount Borrowed
AAdvance50%$1,000,000$500,000 $500,000
BAdvance50%$1,200,000$500,000$500,000
CAdvance50%$900,000$450,000$500,000
DMaintenance60%$833,334$416,667$500,000
ELiquidation70%$714,286 $357,143 $500,000

Eligibility Requirements

Securities held as collateral must meet the following requirements to fulfill standard underwriting requirements.

Equity Securities and Mutual Funds

Equities and mutual funds must meet the requirements listed in the loan document. Such requirements include:

  • Must be traded on a major exchange market: NYSE, AMEX or NASDAQ
  • Must have available daily market price
  • Must have share price above $5.00
  • Must have satisfactory, restriction-free market liquidity
  • Must have no restrictions on transfer
  • May not be a security issued by The Bancorp Bank

Fixed-Income Securities

Similarly, fixed-income securities:

  • Must be assigned an investment-grade credit rating
  • Must have satisfactory market liquidity
  • Must have no restrictions on liquidation or transfer
  • May not be a security issued by The Bancorp Bank

Individual Retirement Accounts, UTMA/UGMA, 403(b), qualified plans and certain trusts are not eligible to be used as collateral.

Accessing Your Securities Backed Line of Credit

You can access the funds in your SBLOC through provided checks or by requesting a wire transfer.

Variable Interest Rates

The interest rate on your Securities Backed Line of Credit may vary based on the loan balance and is calculated using the sum of the Wall Street Journal Prime Rate and the margin set out below. If greater, the floor rate will apply.

Tiers Margin Floor
$.01 - 99,999P + 1%3.5%
$100k - 249,999P + .25%3.5%
$250k - 499,999P3.5%
$500k +P - .25%3.5%

Securities and advisory services offered through J.J.B. Hilliard, W.L. Lyons, LLC, a registered investment advisor and broker dealer. Member NYSE, FINRA & SIPC. Investing in securities involves risk, including possible loss of principal. ©2018. All rights reserved.

The Bancorp Bank and other affiliates are independent organizations and are not affiliated with Hilliard Lyons.

hilliard.com

J.J.B. Hilliard, W.L. Lyons, LLC | Member NYSE, FINRA, & SIPC

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