SBLOC’s, The Good, The Bad and The Ugly - Part 2

This is the 2nd part of a 3 part series about security-backed loans and lines of credit. In Part 1 we examined how security-backed loans could negatively impact an advisor’s AUM. In this part we will discuss why security-backed loans are not a one-size-fits-all solution for your clients. 

In case you missed it, you can find Part 1 here. Give it a read before moving forward.

Why Security-Backed Loans are Not a One-Size-Fits-All Solution for Your Clients

As a wealth advisor, your clients are looking for holistic wealth management. This means not only looking at the asset side of their balance sheet but also considering their debt. In many cases, using financing to fund a purchase makes more sense than liquidating assets. For this purpose, many advisors use security-backed loans and lines of credit and believe it covers all the bases. However, there are numerous instances where a security-backed loan might not be the right option for your clients. This post examines those examples and explores why advisors must have access to multiple loan types (mortgage, commercial, unsecured, small business, etc.) to meet their clients' varied needs.

Firstly, the restrictions on the use of security-backed loans may limit their use. Security-backed loans frequently have strict requirements on the purpose for which they can be used. Borrowers may be forbidden from using funds to invest in things like startup businesses or purchasing a principal residence or other securities, such as stocks or bonds. This constraint may make it impossible for clients to utilize the loan in ways that might benefit them. As a result, having a flexible loan structure that enables more diverse types of investments can benefit clients. It is important to consider the borrower's financial goals and risk tolerance to assess whether an alternative solution is feasible.

Secondly, the loan amount is a significant factor to consider. In order to provide liquidity quickly, many Advisors will suggest a Margin loan (from their custodian such as TD or Fidelity). While Margin loans are quick to establish, they are typically only issued at up to 50% of one's securities portfolio. In the case of an SBLOC, lenders will typically loan up to 70% of the value of Grade A Bonds, 65% of a Blue Chip Portfolio or up to 60% of riskier assets. 

Thirdly, someone looking to purchase a home may not want to use a security-backed loan because of the risks associated with them. Security-backed loans are typically more expensive than traditional mortgages and have higher interest rates due to the additional risk taken on by the lender. Additionally, if the value of your securities drops below a certain level, you could be required to make additional deposits or even liquidate some of your investments in order to maintain your loan agreement.

Fourthly, clients living in certain states might face restrictions when using security-backed loans. In some states, laws may restrict how much of an investment portfolio can be utilized as collateral. This may make it difficult for individuals with substantial wealth to secure significant sums of money using traditional lender criteria and options. This danger may be mitigated through the use of alternative financing options such as secured asset-backed loans for luxury items, unsecured lines of credit, or even mortgage financing where the client's income situation is more complicated than their asset situation.


Although security-backed loans are a popular financing alternative for clients, they may not always be the best option. Advisors need to assess their client's financial circumstances and goals to identify when a security-backed loan may not be suitable. Clients must also evaluate their options, including financing alternatives, to determine the best approach to achieve their investment and finance objectives in a timely and low-risk way. Remember, your authority is more than delivering options that fit into a ‘one size fits all” model. It’s about giving holistic guidance that takes into account all circumstances, and that starts with offering multiple loan options that best-equip clients for their goals.

Stay tuned for Part 3 where we will discuss whether the potential risks of SBLOC’s outweigh the rewards for your clients.


UPTIQ’s Financial Intelligence Platform enables advisors to connect with hundreds of loan types so they can curate the right type of loans from the best lenders and feel confident they are providing sound financial advice no matter what the client need.

SBLOC’s, The Good, The Bad and The Ugly - Part 2
Snehal Fulzele

Snehal is a successful technology entrepreneur, investor and innovator in the financial services industry.

Prior to founding UPTIQ, he co-founded Cloud Lending Solutions, a global lending technology platform used by leading financial institutions globally. As the CEO, he led the growth and talent strategy of the business from inception to its acquisition by Q2Holdings (NYSE:QTWO). As the General Manager of its lending vertical, he continued his work at Q2 to bring digital lending experience for some of the most recognizable banks, credit unions and FinTech companies globally.

He also serves on the board of various high growth early-stage technology start-ups in Financial Services and Healthcare industries.

He holds a master’s degree in software engineering from Carnegie Mellon and has previously worked with big-tech software firms like Oracle and Adobe.