Security Backed Line of Credit (SBLOC): Never Sell Stocks Again

by The Darwinian Doctor

This is a deep dive into the Security Backed Line of Credit (SBLOC). With this tool, you can keep your stocks but still tap their equity. Read below to find out more!

Security Backed Line of Credit (SBLOC): Never Sell Stocks Again.

I’ve written before about one of my main pet peeves with mutual funds. 

You can’t go to Starbucks and pay for your pumpkin spiced latte with a share of VTSAX (Vanguard total stock market index). You need to sell the stocks, transfer the money to your checking account, and then use that to buy your coffee.  

As I love saying, “You can’t buy avocado toast with VTSAX.”

Stocks and mutual funds are great vehicles for saving money.  But there’s a real cost when you go to liquidate mutual funds. Namely, you’ll get taxed on the capital gains that the funds have accrued.  

The fear of these future taxes is a form of loss aversion. The thought of having to pay more money later makes me hesitant to sell stocks now.  

My experience

This was a big problem for me when I wanted to get started in real estate investing a few years ago. After a couple of years of education in personal finance, I’d been squirrelling away all my extra cash into index funds. I also had a handful of individual technology stocks that had done really well.  

By that point, I was so convinced of the power of real estate investing that I decided to do it anyway. I sold $100,000 of individual stocks and incurred about $20,000 of capital gains taxes the next spring.  

It gave the me the capital and momentum to start my real estate empire. But paying those taxes really hurt. I won’t lie.

Our current situation: liquidity needed!

As the Dr-ess and I embark on a big renovation of a vacation home in Palm Springs, we could use some extra liquidity right now. Most of our free cash got deployed in our big buying spree in the last year. That cash is now working diligently in our various projects, and will hopefully start generating income later this year.

We already use the BRRRR method to stretch our dollars as far as they’ll go.

In early 2020, we even cashed out $200k of the Dr-ess’ mutual funds from her taxable brokerage account. This is where we stashed the extra money left over when we sold our first home in Los Angeles. We rolled a lot of that cash (tax free) into our second home, but we still had about $300k left over. This got distributed into index funds with Vanguard. Now this cash is mostly distributed into our investment real estate.

By selling those stocks in early 2020, we incurred over $30k of taxes and also gave up about $75k of gains in the stock market. But if I had known about an SBLOC (security backed line of credit), we probably would still own those mutual funds today.

What is this magical thing called an SBLOC? You’re in luck, because I just did a lot of research on it and am happy to share it with you today.


A security backed line of credit (SBLOC) is a revolving line of credit backed by “pledged” stocks or mutual funds. Similar to a home equity line of credit (HELOC), an SBLOC issues you credit that is “backed” by the asset of your stocks. When you borrow from the SBLOC, you are usually charged an interest-only monthly payment until you pay off the full amount that you’ve borrowed. The interest rates are generally quite low, making them a much better option than a credit card for quick liquidity.

SBLOCs are also called “pledged asset lines” by some brokerages (like Schwab).

These are “non-purpose loans,” so you’re not supposed to use the funds to purchase more stocks. But they’re otherwise unrestricted.  This is the important way that SBLOCs differ from a “margin account” or a “margin loan,” which are a lines of credit specifically used to buy more stocks.

In our case, we’d most likely use an SBLOC to fund renovations or more real estate purchases. Since it’s not restricted, we can use it for any of our liquidity needs.

SBLOCs are offered by a brokerage firm, or the brokerage arm of a bank. It’s one of many investment products out there, but it’s not as well known as the more popular HELOC (home equity line of credit).

Benefits of an SBLOC

SBLOCs offer you the best of both worlds. You can access most of the equity trapped in your stocks and:

  1. You don’t have to sell your stocks
  2. Your stocks continue to grow
  3. You don’t incur capital gains taxes

Theoretically, with a rising stock market you could borrow increasing amounts from the SBLOC as the value of the pledged assets increase.  When you die, your stocks will undergo a “step up in basis.” Your heirs will inherit your assets at the fair market value at the time of your death without incurring capital gains taxes. They can then use these tax-free assets to pay off the SBLOC.

Does it sound too good to be true? Of course, there are risks to an SBLOC.  

Risks of an SBLOC

By utilizing the credit, you risk the underlying asset. If you’re borrowing from the SBLOC and the value of your stocks goes down, you might be forced to immediately sell securities. This could happen in the event of a big stock market crash, for example.  

This is called a “margin call.” If this happens, you can’t choose which stocks to sell. The brokerage may just pick some for you. After the forced stock sale, you might incur the very tax penalty that you were trying to avoid.  

Also, while you’re borrowing against the SBLOC, you’re generally restricted from selling the pledged account. If you want to do that, you might need to either pay off the line of credit or get approval from the brokerage.  

Additional information on SBLOCs from the SEC: Investor Alert: Securities-Backed Lines of Credit

How much can I borrow?

When I called E*TRADE and asked them this question, the answer is “it depends.” If you use stocks that they think are more volatile, they’ll limit your borrowing to a lower percent of the asset value.  The credit limit can range from 50% to 95% of the value of the securities.

When I checked with Schwab, they allow you to borrow up to 70% of popular mutuals funds like the Vanguard Total Stock Market Index (VTSAX).

You can pledge additional securities to the SBLOC to increase your credit line, or simply wait for the market value of the stocks to increase with time. Obviously, the reverse can also happen. If there’s a lot of market volatility, your credit line might be restricted until your stocks recover or you add additional collateral.

The popularity of the SBLOC is rising

You might think the concept of an Security Backed Line of Credit is strange and risky, but it’s a strategy that is quickly gaining in popularity. The Wall Street Journal highlighted SBLOCs in an article earlier this year in an article they entitled, “Buy, Borrow, Die: How Rich Americans Live Off Their Paper Wealth” [paywall]. In it, interviews with financial advisors revealed that loan balances on SBLOCs have doubled in the last 5 years.

They’re especially popular with high-net-worth individuals that have seen big gains in the stock market since the Great Recession. For these lucky folks, tax advisors are turning to the SBLOC to allow for a tax-free credit line to cover everything from day to day cash needs to a bridge loan for a house purchase.

How to open an SBLOC

It’s really quite simple to open an SBLOC. Here’s how you do it:

  1. Find a brokerage that offers an SBLOC
  2. Check that they buy the same stocks that you own
  3. Apply and open an account
  4. Perform a “like-kind” transfer of your assets
  5. Pledge the assets to the SBLOC

That’s it! You’ll have to get credit approval, but generally the brokerage wants your business. So they make it simple and the turnaround time seems to be about a week.

Note: the “like-kind” transfer is very important. This allows you to transfer your stocks from one brokerage to another without selling the stocks. You don’t want to sell your stocks because that will incur capital gains taxes.

Brokerages that offer SBLOCs

A simple Google search shows that there are tons of brokerages that offer SBLOCs. Notably, Vanguard does not offer an SBLOC.

You’ll see as you read about the options that the interest rates are generally quite low. The more stocks you pledge to the SBLOC, the lower the interest rate offered.

Here are four options to get you started, though only E*TRADE and Schwab posted minimum deposit and interest rate information online. For the others, you’ll have to call them for that information.

Links to more information:


In summary, a Security Backed Line of Credit (SBLOC) is a revolving line of credit backed by the value of your investment portfolio. It allows you to tap the value of your stocks without incurring tax payments for the capital gains of the underlying assets.

It offers much lower interest rates than unsecured debt like credit cards, but in turn requires some risk tolerance. The special risk inherent to the SBLOC is a “margin call.” If the value of your stocks drops significantly, you could be forced to sell stock immediately as a partial repayment of the balance due.

As a reminder, I’m not a tax, legal, or financial professional, so don’t take my advice as official investment or tax advice.

But for the Dr-ess and I, an SBLOC seems like the perfect solution for now. We are excited to have a low interest, flexible line of credit that avoids the tax implications of selling stocks. There are special risks to the use of an SBLOC. But with prudent usage, I see it as another tool that will help us build our real estate empire.

Update: We opened our SBLOC at Schwab! We’ll let you know how it goes!


Do you have an SBLOC? Does it sound like a good idea, or is it too risky for your taste? Comment below!

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David @ Filled With Money

SBLOCs sound like a great option for the little guy. It’s only a matter of time before they have crypto backed lines of credits!

9 months ago

if I open a 100K SBLOC and only use 10K from it, do I pay interest on 10K or 100K?

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