What Is SBLOC (Securities Backed Lines Of Credit)? How Does It Works? (#59)

 

What Do SBLOC Stands For?

SBLOC stands for Securities Backed Line Of Credit!

What Is SBLOC? Basically!

SBLOC OR Securities Backed Lines Of Credit is a tool which basically lets an individual to access 70-80% of their portfolio kept as collateral & can use these funds to cover up any personal expenses.... they get this money, tax free!

Let's make the definition a bit more transparent & learn more 'bout SBLOC's by a Short Story!

So let's say that there is a person.... Lets call her Miss-Y. So, Miss-Y has 1 Million $ in her portfolio.... which means she holds a total of $1 Million in Stocks!

& now she wants cash....
So the simpler way.... We all can THINK OF A SOLUTION IS LIKE-- SELLING SOME OF THE SHARES EQUIVALENT TO THE AMOUNT OF THE MOENY ONE NEEDS & THEN USE IT!
But.... Miss-Y is aware of the taxes she'll have to pay if she sold her Stocks OR converted her Securities into Cash! She know that she'll be charged something called Capital Gains Tax.... which is to be paid for fhe profit an individual have earned on Investments.... & Miss-Y just don't wanna pay taxes!

So because Miss-Y has a large portfolio.... she can really take help of a tool called SBLOC.

So, lets say that Miss-Y needs 500k$ in cash....
So, she kept 500k$ OR we can say half of her portfolio as collateral to get the money she needs....
Now after a few days.... Miss-Y will recieve the money in her bank, TAX FREE & can access the funds & use them for anything.... But one thing is that generally this money can't be used to buy more Stocks, Bonds or any other Securities....
However; Miss-Y can buy Real Estate.... as she have 500k in cash now but inspite of that she still has 1 Million Dollars in her portfolio.... means she still hold $1 Million in Stocks.

It is just that simple.... but there are some consequences we'll talk about as we move further into this article.


Ok.... so first now let's talk about some key takeawys about the SBLOC's from the story of Miss-Y we just read....
So,
No. 1 You can only keep as much as 70-80asof your portfolio as collateral & borrow money.
But it may vary from place to place & businesses to businesses as the policies may differ.
By The Way, Experts beleive that it is much better to have SBLOC for as much as 25% only of your entire portfolio.... 'cuz it'll be easy, then to cover up the losses.... (I'll soon talk about the losses the SBLOC's carry.... So Continue Reading!)
2. You can get an SBLOC for as low as 100k$ & as high as 50 Million$.
3. SBLOCS CANT BE USED TO BUY STOCKS OR OTHER SECURITIES TO INVEST IN....
However you may be able to buy Real Estate.
But it may be different from different Companies to Corporations providing SBLOC's.... So it'll be better that you have a conversation about this with the corporation & learn more about their policies.

So these three points answers the 3 main questions....

In SBLOC, how much amout of the portfolio at the highest can be kept as collateral?
Around 70-80% of your entire portfolio can be kept as collateral to borrow the money!

How Much Amount Of Money Do I Need To Get An SBLOC?
You can get an SCLOC for as low as 100k$ & as high as 50 Million$

What Can I Buy With An SBLOC?
You can use SBLOC's to cover up any personal expenses. You can't generally buy any securities such as-- Stocks, Bonds, etc.. However, you may be able to buy Real Estate. Overall, what you can spend the money on & what you can't.... would be determined by the Company's policies.... so, you may just have a regarding conversation with them!


Ok.... so now to answer one more question....

Are SBLOCS risky?

& like any other investment thing.... yeah!

You are literally borrowing money so if there'll be a fall in your portfolios value you can get in trouble, for that! Let's understand this in depth!

So, let's see.... 

How Are SBLOC's Risky?

Let us continue the same story of Miss-Y to understand this....
Ok....
So, let's say that Miss-Y's portfolios value have decreased from A Million Dollars, so, now for that she might be in trouble as she can get a Maintanence Call OR something similar to a Margin Call.

So how is she really gonna deal with this or more specifically talking about how the rich deal with this.... well first off the people who get into SBLOC's are extremely wealthy & have personal assets.... so they can always cover the losses up from other Profitable Assets, they own.... or they may just OR let's say Miss-Y can may just either sell all of her portfolio and be taxed and pay back the SBLOC's money she owes.



So this is how basically things can go like
So now to answer the question....
How Are SBLOC's Risky?
So, if the value of the portfolio dips than one might get something similar to a Margin Call to pay off the money they owe.

How Do Rich People Cover Up The Losses Of The SBLOC's?
The Rich People can always just switch assets around to cover up the losses as they are extremely Wealthy!

How Are SBLOC's Profitable & How Do We Pay Back?
Now, the SBLOC's are Profitable for the good will of not be taxed! & As, per my understanding; there is no fixed tenure or any specific time you should return the money at.... all you will get is a notification telling you about the interest & the money you owe! However, you are supposed to pay the interest per annum!


So, now let's talk a bit about the....
Interest Rates Of The SBLOC's
The larger the portfolio the less the interest rate.... how so ever the interest rates are way lesser than any taxes!





The SBLOC is as a whole, a part of the.... Buy, Borrow & Die System used by the Wealthy to remain Welathy for generations....!
I'll cover this some other day.... So Stay Tuned!


So all I've got to say now is that.... as long as your portfolios value doesn't dips you are good to go....
& make sure you always are prepared.... so I'll recommend to only go for an SBLOC if you can cover up the losses!

Stay Tuned To RSPH Blogs - Finances!.... for more such in depth but easily understandable articles.

Thanks For Reading!