Billionaires like Oracle chairman Larry Ellison have long borrowed against their appreciated stock portfolios to fund new investments, real estate purchases, or simply to enhance their lifestyles. These days, that approach is getting embraced by smaller investors.

Wall Street is encouraging securities-based lending to retail investors with attractive lending rates in the 5% to 6% range -- and significant credit lines that can top 70% of portfolio values.

It has become one of the hottest areas in the retail brokerage industry, with firms like Merrill giving added compensation to financial advisors who do more lending.

At Charles Schwab, securities-based loans rose 59% year over year to $37 billion in the third quarter. At industry leader Morgan Stanley, securities-based loans rose 20% in the third quarter to $124 billion.

Ellison has used loans backed by his Oracle stock to invest in Skydance, the media company run by his son David and controlled by the Ellison family.

Securities-backed loans, called liquidity access lines at Morgan Stanley and by other names at rival firms, can be used for virtually any purpose except for leveraging existing securities. These include educational expenses and tax payments. The loans differ from margin debt, which is used to leverage equity purchases.

Investors, however, need to be careful about tapping these lines given interest costs, repayment, and the risk of margin calls if markets tumble.

The idea behind the strategy often is simple: "Buy, borrow, and die."

By borrowing against their portfolios, investors can access funds without selling stocks or other appreciated assets and paying capital-gains taxes. The combined tax rate on capital gains -- federal, state, and local -- can top 35% in high-tax states like New York and California.

There is a lot of equity in America to tap after the long bull market that has led to a quadrupling in the S&P 500 over the past decade and enormous gains in Magnificent Seven stocks like Nvidia and Apple. The income generated by investor portfolios can pay, or help pay, interest on the loans.

The goal for many investors is to never sell their stocks and pass them on at death to their heirs, who get a step-up and don't pay inheritance taxes if the estate falls below the federal exemption amount, now $15 million.

The area has gotten competitive as securities firms vie to make loans, especially to high net-worth clients with assets of $5 million and up.

Firms like Merrill also offer what they call custom-lending solutions for high-net-worth clients whose portfolios may include less-liquid investments like interests in private-equity funds or other alternative assets. Expanding this business is corporate priority that Merrill's parent, Bank of America, outlined at its investor day a year ago.

Investors apply for a securities-based line of credit backed by their portfolios, and can then draw down the line like a home equity line of credit when needed. Loan approval rates are high -- and decisions generally come quickly -- since the firms look to the securities portfolios as collateral.

But proceed with caution.

"A lot of people want to follow the billionaire class, but what might be good for ultrahigh-net-worth individuals might not be good for the millionaire next door," says Michael Gold, founder and CEO of Gold Family Wealth, a Westport, Conn., wealth advisor. "It's important to ask a series of questions if you do decide to borrow, and recognize that this is different from a home equity line of credit. If your house goes down 30% in value, the bank probably isn't going to foreclose on a loan."

The loans, he says, can make sense to purchase a dream home, make a down payment, or use as a bridge loan for a home purchase while an existing home is being sold.

This can enable people to be all-cash buyers of homes, a plus in a tight market, and give them the option to later take out a mortgage, which can benefit from tax-deductible interest payments.

The loans can be more problematic if they're used for lifestyle creep -- living beyond your means -- since they can snowball in size and leave holders vulnerable to margin calls in a bear market.

"It isn't something we encourage our clients to do, but we have a number of them who have done precisely that. And financially, it makes sense," says Chuck Lieberman, founder and CEO of Advisors Capital Management in New Jersey. "The risk of a margin call is small if the amount borrowed is kept low relative to the value of the account. I wouldn't push back against any client who wanted to borrow 20% or even 25%."

Investors can borrow a high percentage of their portfolio values -- 70% or more for stocks, and 80% or more for bonds and cash.

Katy Lingle, the head of lending solutions at J.P. Morgan Private Bank, says clients use the loans "as backup liquidity, a way to bridge timing gaps without having to sell investments or disrupt an established investment plan."

This could involve an unexpected expense such as a big tax payment, a capital call on a private investment, a coming distribution from a private investment, or a bonus in fields like investment banking or law.

Rates are increasingly competitive as clients play off different firms against each other. Morgan Stanley, for instance, is offering a 5.4% fixed-rate loan for one year and 5.8% for three years through Nov. 6. Those rates are only about a percentage above U.S. Treasury yields. Wells Fargo is making a similar offer through Dec. 4, with fixed rates ranging from 5.5% for one year to 5.99% for five years.

Schwab has a complicated loan pricing grid that gives lower rates to clients with higher account balances. Its rates are as low as 5.35% for credit lines backed by assets of $10 million or more.

Loans can carry a fixed interest rate, or variable at a spread above the Secured Overnight Funding Rate, or SOFR, the short-term rate benchmark that is now at 3.95%.

Morgan Stanley, Wells Fargo, Merrill, and Schwab use their own banks to fund borrowings to clients. Fidelity, which has no bank, has relationships with U.S. Bancorp and other banks that extend credit to Fidelity customers. At Fidelity, loans carry rates of 1.9% to 3.1% above SOFR, or 5.85% to 7.05%.

Investors should recognize that the fixed-rate loans can carry prepayment penalties, particularly if rates decline.

The upshot? Securities-based borrowings offer a lot of benefits to investors. Just don't get carried away.