Is Securities-Based Lending a Good Idea?

Once reserved for the ultra-wealthy, securities-based lending found a following in recent years as a popular source for funding luxury items, real estate and small businesses, among other things. While promoted as a great way to put your unrealized gains to work for you, investors should consider treading carefully.

What Is Securities-Based Lending?

Securities-based lending is the practice of borrowing money while using securities held in your after-tax investment accounts as collateral. Generally, these types of loans are made available by the larger banks and financial institutions, brokerages or advisory firms. The interest rate is typically lower than other forms of credit and is based on the short-term index, such as