then there are non-purpose lines . With these , you can borrow for a wide variety of other needs , including tax payments , school tuition , automobile and home purchases or renovations — or any other purchases that are not related to new securities investments . the amount of credit available for a non-purpose securities-based line is based on an advance rate against the collateral of the account . this is very similar to a loan-to-value amount that banks are willing to lend when a client is financing a home purchase through a residential mortgage . advance rates for purpose lines of credit are limited to 50 % of the account value , while non-purpose lines can be higher , depending on the collateral , along with borrower ’ s credit . in both cases , it ’ s simple to establish lines of credit , since the required documentation is very minimal . and unlike most other credit types , a securities-based line earns approval mainly because of the collateral value of the portfolio . the other advantage of a securities-based line of credit is its affordability . there is usually not a fee to establish a line of credit , and the only cost the client will likely incur is an intercollege planning | estate planning | insurance | inveSTing | portfolio spotlight | real estate | retirement | tax planning
Using Your Assets To Borrow
Securities-based lines of credit are a low-cost , tax-efficient tool for clients who might need short-term cash . By Dan Sullivan
Clients looking to raise short-term cash often sell assets to generate liquidity . maybe they need to pay school tuition , acquire an automobile , make home improvements or pay their taxes , but quickly liquidating long-term assets to do it is hardly tax-efficient . for that reason , many clients are turning to an increasingly popular alternative : borrowing using their securities , such as stocks and funds , as collateral . it ’ s a tax-efficient and convenient option that gives the borrower flexibility in meeting their cash needs without greatly disrupting their wealth planning .
The ABCs Of Securities Lines Of Credit the bankers offering these loans refer to it as securitiesbased lending , and it ’ s important to understand the basics . there are two ways you can borrow . one of these involves “ purpose lines ,” also commonly known as “ margin lines .” With these , you can borrow from a bank using your own securities as collateral — and then acquire even more securities to add to your existing portfolio . july / august 2022 | financial advisor magazine | 55