Borrow on margin

One method that is often overlooked when people need cash is borrowing on margin. If you have investment accounts where money is placed into the stock market and mutual funds, you can often borrow against those assets using something called margin. Margin was created to allow you to invest more money than you have by putting up other investments as collateral. Most brokerage accounts make it easy to borrow money like this.

Margin was created to allow you to invest more money into stocks. But it is possible to cash the money out and use it for other things. It is a somewhat risky strategy. Your brokerage may “call your margin” and asked that the money be repaid. If you are unable to pay they may sell your stocks in order to recover their loan.

Obviously if your stocks retain their value the brokerage is unlikely to call their loan. But if the value of your stocks significantly declines, the brokerage is more likely to demand payment. If the market is declining they want to get their money back before you have nothing of value to repay them with.

Still borrowing on margin is a strategy to consider — particularly if you need a short-term loan and are certain you can arrange other financing in the very near future. For example, borrowing a margin may allow you to take advantage of a profitable business opportunity on a very short timeframe. Borrowing on margin doesn’t typically require the extensive credit checks and paperwork of other types of financing. And since it is backed by stocks that can be quickly liquidated it generally carries a low interest rate.

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