3 Ways to Borrow Against Your Assets

Debt often gets a bad rap. But when managed responsibly, borrowing money can help you achieve your financial goals. In fact, the more assets you own, the more lending solutions you may have at your disposal.

Individuals who have built up their net worth—whether in their investment portfolios or homes—could have broader borrowing options by using their assets as collateral. But doing so exposes those assets to increased risk, so you need work within your debt tolerance, financial capacity, and investment knowledge to manage such debt effectively.

Let's take a look at three asset-backed lending solutions—and under what circumstances these types of loans might be most appropriate.

What it is: Your brokerage firm can lend you money against the value of eligible stocks, bonds, exchange-traded funds, and mutual funds in your portfolio. Margin loans typically require a minimum of $2,000 in cash or marginable securities and generally are limited to 50% of the investments' value. Interest rates vary depending on the amount of money being borrowed but tend to be lower than unsecured lending options such as credit cards.

When to use it: Funds borrowed on margin are usually used for:

• Additional investments: You may establish a margin account as a way to take advantage of a trading opportunity when you don't have adequate cash on hand. However, if the value of your margin account falls below the maintenance requirement—the minimum dollar amount that you must maintain in the margin account once you've tapped the funds—your brokerage will issue a maintenance call, which requires you either to deposit more money or marginable securities or to sell some of the assets held in your account. Take note, if you use the funds to purchase investments that generate taxable income—including interest, nonqualified dividends, and short-term capital gains—you may be able to deduct the loan interest paid if you itemize so consult your tax advisor.
• Short-term liquidity needs: As with any line of credit, you can draw from and replenish a margin account for any reason, not just purchasing securities. A margin loan is a ready source of credit that may be used to finance any short-term or unexpected expense, such as paying a high tax bill or making a large purchase. Also, unlike some other lending alternatives, there's not a lengthy application process. The key to borrowing on margin for short-term funding is moderation. If you borrow too much and your portfolio's value declines before you repay the loan, you could face a hefty maintenance call—and potentially capital gains taxes should you need to sell appreciated securities to meet it.

P.S. It's important that the assets in your brokerage account are diversified. If you're overly concentrated in a particular investment, you could quickly find yourself below the required maintenance threshold should that investment decline considerably.

What it is: A securities-based line of credit (SBLOC) offered through a bank allows you to borrow against the value of your portfolio, usually at a variable interest rate that is typically lower than margin rates. Assets are pledged as collateral and held in a separate brokerage account at a broker-dealer. You may also be required to pledge a minimum dollar amount—$100,000, for example—to borrow against. That said, you may not use these credit lines to purchase securities or pay down margin loans, nor can you deposit the funds into any brokerage account.

When to use it: You can use an SBLOC for many purposes, including:

• Liquidity or bridging: For individuals with uneven cashflow, an SBLOC provides quick access to cash to help with income smoothing throughout the year. You can also use this loan to temporarily bridge two financial transactions. For example, business owners can use an SBLOC to purchase inventory or needed business equipment, or a homeowner can use the loan amount to buy real estate in a hot market before they sell their current residence.
• Tax-efficiency and investment continuity: Borrowing against your investments, rather than selling them, can help avoid capital gains taxes and keep your investment strategy intact. Another common use of an SBLOC is to borrow against assets to pay a large tax bill.

P.S. An SBLOC from a bank is subject to a high degree of risk (similar to margin), which you should be sure you understand before applying. Should the market value of the pledged collateral decrease, the bank could demand immediate repayment of outstanding obligations or require you to deposit additional cash or securities to the pledged brokerage account to avoid the sale of pledged assets.

Pledging diversified assets and borrowing far less than the pledged amount can help reduce this risk. Be that as it may, you should keep an eye on the value of your pledged assets—and have a backup source of funds in the event of a demand.

What it is: A home equity line of credit (HELOC) is a revolving line of credit, typically with a variable interest rate, collateralized by the equity in your home.

Generally, a HELOC has a 30-year loan term consisting of a draw period and a repayment period. The first 10 years are the draw period, where you can borrow as much as you need—whenever you need it—up to the limit established by the bank or credit union.

Typically, during this time, you must make scheduled interest payments but have the option to pay toward the principal. Once the line of credit enters its repayment period, however, you'll owe principal and interest on the loan amount for the remaining 20 years.

When to use it: Although you can use a HELOC for many purposes, it's particularly well-suited for:

• Home improvements: HELOCs are an attractive financing option if you're thinking about upgrading or you need to make necessary repairs to your property. When used for this reason, individuals and married couples filing jointly who itemize deductions may deduct the loan interest on their federal income tax—for 2025 or 2026, up to a total combined mortgage debt of $750,000—but only if the funds are used to buy, build, or improve the home used to secure the HELOC.
• Emergency backup: If you don't have an immediate cash need, you can establish an account to back up your emergency fund. Having a ready, quick source for liquidity can provide peace of mind when an unexpected event should happen.
• Major purchases or expenses: A HELOC can be another way to temporarily fund a major purchase or cover a large expense like a new vehicle or a wedding. However, note that holding debt for any extended period of time on a depreciating asset is rarely a constructive use of debt.
• Debt consolidation: HELOCs may charge lower interest rates than credit cards and personal loans, which can be helpful if you want to consolidate high-interest loans and reduce borrowing costs. However, because a HELOC is secured by collateralizing your home, you need to have a solid payoff strategy. Failure to make the agreed payments may give the lender the right to begin foreclosure, which could result in the loss of your home.

P.S. Lenders need time to process a HELOC application because it requires a home appraisal and a credit check, including an underwriting review of your credit history and income, which can take weeks. Because of the time involved, it's best to open a HELOC well before you need the funds.

Margin and bank-offered SBLOCs, in particular, are best suited for those with the tolerance and financial capacity to take on a loan collateralized by investments that can be volatile. For HELOCs, it's crucial to develop a repayment strategy because unlike a traditional mortgage, these loans generally have a more flexible repayment schedule.

The right loan depends on how you plan to use the funds, the costs involved, the risk you're willing to take, and how quickly you expect to repay it. Use credit thoughtfully and avoid borrowing more than you need. A well-thought out plan can help you reduce risk and protect the assets you've worked hard to build.