Consider Leveraging Assets When You Need Cash

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August 05, 2016

Do you need to pay taxes, manage short-term cash-flow needs or address another critical financial situation — and, at the same time, avoid liquidating your assets? If the answer is yes, you may want to consider liquid asset secured financing as an option. Liquid asset secured financing lets you leverage assets in one or more investment accounts without liquidating the investment.


This line of credit offers flexibility and liquidity, particularly in regard to financial opportunities that can arise at the last minute, such as the chance to win a bid for a second home, according to Kristine Knight, Private Banking Managing Director for The Private Client Reserve of U.S. Bank. In addition, the line of credit may give you better control over your finances.


“In essence, this is how it works: The investor’s investment portfolio is used as collateral against a loan,” Knight says. “There is very little set-up cost, turnaround time can be very quick, and interest rates can be much more attractive than other types of short-term financing. Plus, assets can be liquidated quickly, if necessary.”


Additionally, Knight notes, “Monitoring occurs daily, so if there’s any market fluctuation, it would be detected immediately.”


Consumer and Commercial


Liquid asset secured financing can benefit both consumer and commercial clients.


“Not-for-profit organizations are putting these types of facilities into place,” Knight says. 

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August 05, 2016

“The last several years have been a little choppy for donations and grants, and lining up the timing of projects can be tricky. Rather than liquidating endowment funds or pursuing other, more expensive financing to cover operating expenses, a not-for-profit organization can use a portion of the endowment fund as collateral without disrupting overall investment objectives.”


Liquid asset secured lending costs very little to set up, requires no personal financial statement or tax returns for loans up to $5 million and offers attractive interest rates and flexible repayment of principal. In addition, liquid asset secured financing features a streamlined application and expedited approval process and on-demand access to available funds.

This financing method can be used to facilitate the process of paying your taxes and managing your short-term cash-flow needs, finance special purchases, serve as a bridge loan or refinance higher-interest rate debt.


However, this line of credit is not without considerations: A loan application and underwriting are required, and as collateral values are monitored daily, a drop in value of the pledged securities could result in a margin call. Furthermore, a downward market fluctuation could cause the loan to become due earlier than planned.


Also, pledging of assets can make it harder to rebalance a portfolio or sell the assets, and the release date is based on the individual assets to be pledged that are deemed eligible by U.S. Bank. Finally, distributions from pledged accounts must be approved by U.S. Bank.

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August 05, 2016

Scenario of Choices


Without a liquid asset secured financing option, “A client might suddenly call a portfolio manager and say, ‘I need to liquidate $50,000 to pay estimated taxes,’ ” Knight explains. “The portfolio manager would sell assets, which could incur capital gains taxes, and it might not be the best time for the portfolio manager to sell that investment.

“We can show clients a number of choices that may help prepare them for these types of challenges,” she continues. “Especially now, with the low-interest-rate environment that we continue to find ourselves in, providing clients access to liquidity without disrupting their goals is really pertinent."


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