My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.

Getting a Margin Loan

Securing a margin loan can mean quick cash for startup, but it doesn't come without risk.
Magazine Contributor
2 min read

This story appears in the November 2007 issue of Entrepreneur. Subscribe »

Question: I'm thinking about borrowing against my securities to open an art gallery. What are the pros and cons of using a margin loan to finance a business?

Answer: Unlike applying for a business loan from a bank, borrowing against your stocks, bonds and other securities can be a quick and easy way to get startup money. There is no business plan to present, no mountain of paperwork to fill out and no credit check to pass. Assuming that you have at least $2,000 in cash or securities in your account, your brokerage firm will typically lend you up to 50 percent of the value of most stocks, mutual funds and other widely traded securities at rates that are often lower than you'd pay for a loan from the bank. For example, if you own $100,000 worth of Microsoft, your broker will generally allow you to borrow $50,000 on margin. And the interest is usually tax deductible.

A downside, of course, is that any time you borrow money to start a business, you run the risk that your company may not produce enough cash to service your debt. Should you find yourself unable to repay the money you borrowed, your broker would be forced to sell some or all of your shares to satisfy your debt.

Borrowing against your stocks and other securities carries another risk. If the price of your stock declines, your broker may ask you to deposit additional funds in your account, which is known as a margin call, to maintain the firm's minimum margin requirement. If you can't come up with the necessary money in time, your broker will liquidate your securities, possibly triggering losses and unfavorable tax events.

"Borrowing against your stocks, bonds and mutual funds to capitalize a new business can be a viable option," says Kenneth Shapiro, a wealth management advisor at Merrill Lynch and a former entrepreneur, "but it's not without risk."

Rosalind Resnick is the founder and CEO of Axxess Business Consulting, a New York City consulting firm that advises startups and small businesses. She can be reached by e-mail or through her website.

More from Entrepreneur

Amina AlTai teaches entrepreneurs and intrapreneurs how to balance a thriving career, body and mind.
Jumpstart Your Business. Entrepreneur Insider is your all-access pass to the skills, experts, and network you need to get your business off the ground—or take it to the next level.
Starting, buying, or growing your small business shouldn’t be hard. Guidant Financial works to make financing easy for current and aspiring small business owners by providing custom funding solutions, financing education, and more.

Latest on Entrepreneur