Borrowing in the Short-Term

by JT McGee

There are a billion ways to raise short-term capital. Some are well-known, some aren’t.

Some – err, most – are just accounting gimmicks.

Borrowing in the Short Term

  1. Pay less on something – As explained in a post about financing depreciating assets, any amount that you do not repay on your debts is money that you are financing. If you’re paying off a debt early, you’re essentially investing in your debt. If you pay it back slowly, you’re essentially financing the difference. Few people who need short-term cash are rarely in a position where they’re making prepayments on a current loan, however.
  2. Sell something – Ahh, financial assets that can be easily liquidated are great for short-term forms of fundraising. You can always buy back a mutual fund or stock holding. Sell it today, liquidate for cash, and promise to buy the asset back in the future. It’s as good as a loan, except the interest rate – the opportunity cost of gains given up – is 100% unknown. People hate doing this, but you know that when you need to raise capital, you have to raise capital. I still think there’s nothing wrong with liquidating a portion of your investment capital if you know you have a strong desire to replace it in the future. Be mindful of your cost basis and length of ownership, however – you don’t want to sell something and pay capital gains taxes at your income tax rate if you haven’t owned the investment for a full year.
  3. Borrow short-term – The obvious answer! Short-term forms of capital from a credit card or payday loan shop like can be expensive, but you have to do what you have to do. Always survey for additional opportunities – I’d sell something or pay less on a debt before I borrowed via a new funding mechanism to finance immediate cash needs.

You can find it, but you pay for it

Look, you can always find money when you need it, but you’ll pay for it one way or another. Save for only one available option above – selling something and buying it back in the future – all money comes at a cost. Some people get lucky and…say, ditch assets right before a stock market meltdown 2008-2009 style, but the long-term trend is always up, so the odds-on bet is that any immediate cash flow needs will set you back a few percentage points in interest or capital gains at a minimum.

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