Clients successfully met tight timelines without withdrawals in satisfying their objectives.

In the fast-paced world of wealth management, the ability to act swiftly can significantly enhance client satisfaction and trust. And when it comes to those situations where your clients need access to quick liquidity to meet new opportunities or manage emergent cash flow issues, having alternatives in place to avoid hasty portfolio withdrawals can be essential to protecting their long-term financial goals.

Independent advisors can provide an alternative to portfolio withdrawals by introducing their clients to a securities-based line of credit (SBLOC). Such credit lines offer clients prompt liquidity without disruption to their investment portfolio. TriState Capital Bank has a proven history of partnering with advisors to meet a range of client borrowing needs, including the challenging and complex, with exceptionally efficient speed. Here are just two examples of how speed to funding allowed one advisor to help two of his clients meet their current goals without compromising their long-term investment objectives.

A Business Owner Builds Cash Flow Resilience through SBLOC Liquidity

The workweek of the private business owner rarely includes a day off. One early Sunday morning a business owner found himself reviewing his business accounts and strategizing for the period ahead. Several sizable receivables that he had been expecting for weeks were still outstanding. With looming payroll deadlines and business taxes to settle, he realized the urgent need to secure funding quickly to maintain his business’s momentum.

There had been a few previous occasions where he narrowly avoided withdrawing funds from his investment accounts. He understood that such withdrawals would incur tax consequences and sideline future market participation. Then he recalled his financial advisor mentioning several clients utilizing securities-based lines of credit (SBLOCs). Could this be an option to address his current business needs?

Strategic Lending Solutions for Evolving Real Estate Portfolio

An experienced commercial real estate investor had successfully financed numerous property acquisitions and renovations using securities-based lines of credit (SBLOCs). Their diverse portfolio comprising retail centers, office buildings, and industrial warehouses had grown significantly over the years.

However, as the scale of their business expanded and interest rates fluctuated, the challenge of managing capital costs became increasingly complex. Recognizing the need for more sophisticated financial solutions, the investor’s advisor introduced them to TriState Capital Bank as a partner with expertise in flexible and customized financing options.

Now On Demand

Summary: This informative webinar provides an overview of a securities-based line of credit (SBLOC) from TriState Capital Bank. As one of the most flexible lending options available to you and your clients, SBLOCs offer access to liquidity without disrupting your clients’ investment strategies and objectives. With both fixed- and floating-rate options available, SBLOCs are an ideal solution for both short- and long-term borrowing needs for all of life’s milestones.

Accepted for 1 CFP® / IWI / CFA CE Credit

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*This CE Credit is produced by RIA Channel

Cash is King in Real Estate Purchases

A couple contacted their financial advisor to discuss
making a significant withdrawal from their non-qualified
account. They were trying to purchase a larger home in
a competitive housing market, but their mortgage contingency
was keeping them from winning bids. They were frustrated.
“We need the cash,” they explained.

Fortunately, their financial advisor had a solution—a TriState
Capital securities-based line of credit (SBLOC). This gave them
quick access to cash without making a substantial withdrawal
that would disrupt their long-term investment goals.

Advancing the Timeline for Sizable Home Renovations

A family shared with their advisor their desire to upgrade their
primary residence and also begin renovations on a second
home. While exploring home equity financing, they realized
that given their current levels of home equity, the timeline for these
projects was still years away. They started considering the option
of liquidating some of their investments to finance the projects.

Their financial advisor introduced an alternative thought—a
TriState Capital securities-based line of credit (SBLOC). Unlike
home equity lines of credit (HELOCs) that rely on current home
value, an SBLOC would use their non-qualified investment portfolio
as collateral, offering them immediate access to cash while
keeping their assets invested.

Over the last two years, rising interest rates have created financial concerns for high-net-worth clients— and a need for resolution. One such individual came to us regarding a large floating real estate debt. This client had used a securities based line of credit (SBLOC) at a large commercial lender to purchase a home several years before, financing $3.6M at a variable rate. He planned to make interest-only payments for several years, but in 2022 and 2023, rate increases caused his monthly payments to rise. In search of a better solution, he turned to his financial advisor, who recommended he speak with us.

A financial advisor contacted us regarding a client who needed a debt solution—and quickly. When interest rates were low, this individual took out a variable rate line of credit at a regional bank. He used the funds to pay a large tax bill, support private real estate investments, and fund various home improvements. The loan kept growing, interest rates kept rising, and before too long, the monthly payment became unpredictable and unmanageable. This individual contemplated liquidating his portfolio to pay off the line of credit. To avoid this immediate reaction, his financial advisor recommended a conversation with us.

For investors in alternative investments such as hedge, private equity or real estate funds, capital commitments require an ongoing liquidity strategy to fund investments on someone else’s schedule. Even those with the most significant balance sheets want to avoid harvesting investments on short notice, which can lead to the disruption of investment strategies and tax objectives.

Proactive Cash Planning

Charlotte made two capital commitments in year one, the first to a special situations fund, and the second to a real estate mezzanine finance fund. Shortly thereafter, the first of multiple capital calls are requested by the fund sponsor. Throughout this time frame she must maintain a liquidity cushion in order to ensure adequate cash to meet the next call, although she would like to stay invested in her core portfolio. Instead of selling off assets, Charlotte has established a plan for liquidity that provides the cash she needs, while also maintaining her liquid investment portfolio.

Maintaining a Full Investment Strategy

By utilizing a securities-based line of credit from TriState Capital, private equity investors can have access to considerable amounts of liquidity without derailing their carefully crafted investment strategy.

a) Create cash capacity to plan for future capital calls and invest at the same time.
b) Draw as needed with no fees; repay with no maturity dates; and pay interest only on what is used.
c) Utilize a streamlined process and robust lending platform that enables a quick delivery through an exceptional and secure digital experience.
d) Maintain a conservative approach to borrowing and provide peace of mind that capital call(s) can be met, whenever they come in.
e) Resolve short-term liquidity needs by borrowing eligible securities without using assets.
f) Enjoy the flexibility of using multiple portfolios as collateral, with individuals, entities and trusts all eligible to borrow and pledge.
g) Choose a floating rate line of credit with the flexibility to swap to fixed rate.

Keeping Cash Invested Over Time

A TriState Capital Bank securities-based line of credit (SBLOC) allows investors to establish borrowing capacity at the onset of a fund commitment, secured by non-retirement liquid assets. As capital calls occur, the line can be drawn on quickly to meet capital calls while continuously maintaining the balance until a liquidity event or paydown is desired.

Almost no aspect of the financial industry was left unaffected by COVID-19. The resulting hardships being faced by financial institutions, corporations, and middle market businesses alike have driven the financial industry to innovate and design new ways to strategize not only for the immediate future, but for the long-term financial health of their companies and clients.

The New Lending Trends

As we forge ahead through pandemic recovery, we’re seeing unexpected trends emerge in the marketplace. One of the most unlikely shifts we’ve seen in recent months has been the transition of revolving credit facilities from secured cash-flowbased to asset-based lines of credit (ABL). Though once thought of as typically an option for borrowers who found it difficult to qualify for a traditional bank loan or line of credit, companies experiencing operational challenges, or a way to take on more leverage in pursuit of acquisitions, ABLs have achieved a more mainstream consideration. Their popularity has only
been bolstered through the uncertainty that still affects the business sector. Having accommodative structures, ABLs have even become a more likely option for investment-grade borrowers. Structure aside, we see this trend gaining speed for other reasons as well.

Why the Shift?

The first reason we see is the fear of violating covenants. If a company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) falls below a certain level, they run the risk of breaking the terms of their cash-flow-based revolving line of credit. Because of this, many companies are taking a proactive stance by converting to asset-based lending revolvers sooner rather than later.

The second reason this trend is growing is the overall need for liquidity. ABLs typically provide greater liquidity because borrowing limits are based on margined collateral value instead of metrics like EBITDA or leverage rations, which are only used to determine creditworthiness, not borrowing limits, when it comes to ABLs.

Typically, ABL rates (i.e., the maximum percentage of the value of collateral a lender is willing to extend) are approximately 85% of the net orderly liquidation value of inventory, a methodology that provides a lot more liquidity. This is also why companies experiencing high growth and a need to fund expansion seek out ABLs.

More Sustainable Strategies

Seeing a back-and-forth shift between cash-flow-based funding and ABLs is not uncommon, especially when we consider the impact changing financial circumstances have on companies’

 preferences. But this time, we’re seeing that COVID-19 is pushing companies to choose ABL conversions proactively due to economic uncertainty and the loss of clear visibility into the future of their business.

Companies are using cautious foresight when it comes to covenant violations with cash-flow-based lending, and for good reason. Traditional methods of prediction just aren’t reliable in the wake of the pandemic. Without a clear picture of how sales will be affected, or whether they’ll be able to operate at all if their current facilities are closed, companies are opting for setting up better options for riding out an uncertain economic future by putting up assets as collateral.

The Future of ABLs

From middle-market companies to large corporate borrowers, increased ABL conversions are expected across the board, potentially having long-term effects on financial preferences. Historically, once a company is accustomed to the financial reporting conventions of ABLs, they usually find it to be a longer-lasting solution, especially with the increased liquidity ABLs provide.