Hi, my name is Jed Inzerella with Darnall Sikes Wealth Partners. I want to share with you our firm’s new funding solution for our auto, furniture, and RV dealers, a securities-backed line of credit or collateralized loan that uses a reinsurance surplus account as collateral. In fact, I wish we’d had it to offer earlier this year when one of my clients, Steve really could have used it. Steve’s 56 and owns a GMC dealership. He walked out of a quarterly session meeting to hear about a nearby dealership who was getting pressured by the franchisor to sell. That dealership had been operating at a loss and the owner had no children in the business. Steve has wanted to expand his franchise for years, but the $5 million price tag was more than he had on hand. He knew that to get a loan, he’d have to sell the investments to raise cash for a down payment. What gains or losses would he have to realize? And would he have to pay taxes he was hoping to avoid or completely defer? Steve had been investing for retirement his whole career and planned to retire at age 65. He wondered if he took out a loan now, would he and his wife be able to retire the way they wanted in just nine years-European vacations, boating, golfing, and so on? On the other hand, if he didn’t buy the dealership, would he be missing out on the opportunity of a lifetime?
Now, I’ve been Steve’s financial advisor for 10 years, and I’ve helped him manage the money and his reinsurance companies as part of his overall financial plan. The day he heard about the dealership sale, he immediately called me. I knew exactly what he needed, but we didn’t yet have a lending partner in place to make it happen. So, to buy the dealership, Steve took out a traditional loan and had to sell some of his securities to get cash for the down payment. His sale was during a down market, and he was forced to realize a loss. Since then, my team worked closely with our lending partners to set up the kind of solution I wish I’d been able to offer Steve. A non-purpose line of credit that uses the reinsurance surplus account as collateral. With our solution available now, you don’t have to sell your investments to raise cash or incur related capital gains or losses. And most importantly, your long-term investment strategy remains intact. The loan rate is based on an interest rate index. You can also choose to make interest-only payments, avoiding potential cash flow pressure in a time of need. Two additional benefits, the interest payments can be tax-deductible and the loan can be made in either the dealer or the entity’s name for any purpose.
If Steve called me today with the same franchise opportunity, I would talk to him about the line of credit. Because he has a mature business with enough money in a surplus account, it would be easy to open a line of credit using his reinsurance surplus assets as collateral. If you’re ever in a similar situation, whether you’re expanding or remodeling your store, restructuring debt, or need cash for any other purpose, it would be smart to consider a line of credit backed by your surplus account investments. At Darnall Sikes Wealth Partners, we help dealers every day with all their reinsurance and financial advisory needs. So, please give us a call.
What is the difference between a traditional loan and securities-backed line of credit?
Can I use the funds in my reserve account as collateral with a securities-backed line of credit?
Are there any restrictions on the use of securities-backed lines of credit?/securities-backed-line-of-credit
With a securities-backed line of credit, do I have to be listed as the borrower?
With a securities-backed line of credit, are there restrictions on withdrawals and transfers?
What are the repayment options with a securities-backed line of credit?
Who is the ideal candidate for a securities-backed line of credit?
If I’m interested, how do I get more information?