Securities-Based Lending

[ finance  sbl  securities-based-lending  margin  LIBOR  ]

Securities-Based Lending or 股权质押 refers to the practice of making loans using securities as collateral. Securities-based lending provides ready access to capital that can be used for almost any purpose such as buying real estate, purchasing property like jewelry or a sports car, or investing in a business. The only restrictions to this kind of lending are other securities-based transactions like buying shares or repaying a margin loan.

Pros

  • Tax friendly. It precludes the need to sell securities, thereby avoiding a taxable event for the investor and ensuring the continuation of the investor’s investment strategy.
  • Lower interest. SBL offers access to cash within a couple of days at lower interest rates with a great deal of repayment flexibility These rates are often much lower than home equity lines of credit (HELOCs) or second mortgages. the rate borrowers are charged is generally variable based on the 30-day London InterBank Offered Rate (LIBOR). Interest rates are typically two to five percentage points above LIBOR, depending on the sum.
  • can be used for almost any purpose such as buying real estate, purchasing property like jewelry or a sports car, or investing in a business.

Cons

  • mostly available to people who have a significant degree of wealth and capital
  • potential for systematic risk. As interest rates continue to increase, financial experts are becoming increasingly concerned that there could be fire sales and forced liquidations when the market turns. Securities lending is neither tracked by the Securities and Exchange Commission (SEC) nor the Financial Industry Regulatory Authority (FINRA), though both continually warn investors of the risks involved in this market.
    • Similar to marginal count for security lending, when the markets drops a lot, you will need to sell the security and probably pay the taxes at the same time.
  • not allowed for other securities-based transactions like buying shares or repaying a margin loan.

Securities-Based Lending vs Margin Loan

Margin loan is provided to purchase securities (stock, bond etc.) and secruities-based lending could be use for most expanses except purchasing for securities.

Examples

Bank Interest Rate Amount
Wells Fargo Wallstreet prime rate is <$5M or -0.5% when >$5M 50%~90%
JPMorgan Check with bank  
tdameritrade 30 Day laor + [4.0%~1.5%] for $150K~$3M 50%~70%
Fidelity Not applicable  
Schwab 4.65%~1.90%for $10K~$2.5M  
Written on June 20, 2021