Planners get it a lot these days - a client calls on Monday morning in desperate need of a cash infusion to help an unemployed daughter, an entrepreneurial brother or replace a pooped-out furnace. Sometimes, the client just wants a short-term loan to make it through to bonus day.

But with the economy still shaky and banks reluctant to hand out money, getting cash on the quick is no easy feat. "It's a great time to borrow because of the low interest rates," says Michael Hensley, a financial planner at Guardian Capital Advisors in Raleigh, N.C. "It's just not a great time to actually get a short-term loan because banks are only loaning to people with good cash flow."

To deal with this quirky catch-22 situation, financial planners are increasingly investigating the source of their client's problem and then drumming up tailor-made solutions, ones that sometimes entail telling clients the hardened truth: It's a bad time to need money. "We have to be hard-nosed with our clients," says Mari Adam, president of Adam Financial Associates, a financial planning and investment management firm in Boca Raton, Fla. "And we have to be honest."

Adam and other planners say they are increasingly seeing short-term loan requests as prime opportunities to talk to clients in depth about how they got into their fix and why they're strapped for cash. Are they growing a business, did something truly unexpected happen or are they routinely spending imprudently or footing the bill for needy relatives they can't really afford to support right now?



Figuring out the real reason behind the need for a short-term loan can be tricky because it entails some tough conversations about spending habits, family dynamics and the wisdom of buying a coveted item like a new Volvo or a vacation home in Miami, Adam says. "But clients want to have these conversations," she says. "And they thank us after. We're the impartial party."

Todd Ballenger, CEO of KendallTodd, a financial consulting firm in Chapel Hill, N.C., says he tries to operate as a mirror for clients who come to him saying they have a cash flow issue. "You do it without judgment, but it really starts with developing awareness," says Ballenger, the author of Borrow Smart, Retire Rich: A 7-Step Process for Managing the Wealth in Your House. "You have to see whatever it is that is going on and then help clients see it for themselves."

Hensley at Guardian Capital says his firm has been encouraging clients who call needing short-term loans to assess for themselves whether their problem is really short-term or systemic. "Everyone has had to readjust to this new economy," Hensley says. "But not everyone has."

When a client needs a short-term loan, he says, a red flag goes up. "I have to tell some clients flat out: 'This is a new world. Your spending right now should be needs-based, not want-based.' "

Jonathan Gassman, who founded Gassman & Golodny, a boutique wealth management firm in New York, says he sometimes has to dig deep into family dynamics. Recently, he had a client who came in for money. He finally figured out it was because the client's wife was a compulsive gambler. Gassman told him, "You've got to stop this before it depletes your retirement account."



In Florida, Adam has spent a lot of time telling clients they shouldn't be lending money to children in need, or friends whose businesses have gone sour. "We get so many of those calls," she says. "And while we all want to be compassionate, these are loans that generally don't get paid back."

Recent polls suggest that, far from being unwelcome, these types of hard-to-have conversations are exactly what most clients want as they struggle to align their monthly budgets with their long-term financial goals, not to mention their relationships with family and friends. According to an August 2010 survey in Merrill Lynch's Affluent Insights Quarterly, 63% of respondents said they were looking for help in managing their cash flow. The August 2011 survey found 67% were looking for specific advice in addressing their unique family circumstances.

To be sure, not all short-term loan requests fall into the ill-advised category. When clients are looking to replace a furnace or put on a new roof, buy a car, help finance a son or daughter's wedding, or deal with delays in regularly scheduled payments, fees or bonuses, it can make sense to borrow if the money really isn't there.

Another viable reason that some clients might need short-term loans now is to address the increased delays that home sellers face as their buyers secure their own financing. Often, a bridge loan, which charges higher interest rates than a regular loan, can turn out to be a pricey - but worthwhile - short-term option in these changing circumstances.

In all of the above instances, the key is to move fast and creatively. "The goal is to figure out the cheapest, lowest risk way to get them what clients need," Ballenger says.



To do that, most planners have a list of tried-and-true quick cash options in their toolbox, even today, when large banks are reluctant to pony up. They include:

* 60-day loans from an IRA that are penalty-free.

* Options that allow clients to yank out the money they put in a Roth IRA during a particular year, as long as they put it back by April of the following year.

* A rule that allows a client to grab 50% of his or her money (up to $50,000 a year) from a 401(k), to be paid back within five years. This can be tricky, though, because a job loss can cause unexpected withdrawal fees and penalties. For those in the 59 1/2-and-up set who are still working, tapping a 401(k) can be a great option. These clients pay taxes, but no penalties.

* Home equity lines of credit. Those can be tough to obtain today, however, because anxious banks, uninterested in owning any more real estate, have been capping or decreasing the sums consumers are allowed to borrow.



Some financial planners like Gassman suggest pulling from permanent life insurance policies, That's what he recently advised a client to do to be able to pay for a new house.

The minute the sale of the house he just sold goes through, he'll put the money back in," Gassman says. He adds that he also advises cash-strapped clients to look to their employers because companies often have loan programs - like one run by Emerge Workplace Solutions - that offer low-interest, nonpredatory loans.

For disciplined clients who need cash for a specific purchase, limited-time, no-interest credit cards and store credit cards can be a smart solution. They are abundantly available right now for anyone who can get them.

"It's the cheapest money out there," Gassman says. But as with all credit card borrowing, this option requires exacting discipline. If clients are late in repaying, they are hit with searing penalties.

Other planners are telling older clients to look to reverse mortgages. Margin loans, which allow clients to borrow against stock and bond portfolios, also can work.

Sometimes, clients in dire straits might consider liquidating some of those assets, although when the market is particularly volatile, that can seem like a prohibitively risky idea if the client truly intends to get back in. Adam in Boca Raton has begun tapping small regional banks - often successfully - after a large national bank turned down a loan request from one of her clients, the owner of a small but thriving pool-servicing company.



Jeff Gitterman, CEO and founder of e-Squared Financial, a financial services firm in Iselin, N.J., that targets employees of state universities, says pensions are an often-ignored source of cash, even though more than 30% of private sector employees work for companies that still have them. And that doesn't include public sector employees.

"Financial planners who don't actively work in pension systems may not be aware that loans are available through them," Gitterman says. In many cases, there are no limits on borrowing.

Gitterman also suggests rethinking the short-term loan idea altogether, opting instead for credit consolidation. "I see people who have cash advances of 19%," he says. "The first thing you want to do with someone like that is solve their larger debt problem." A client may find palatable options that significantly reduce his or her monthly obligation, making borrowing no longer necessary.



Once planners have helped a desperate client procure cash or cut back expenses, they shouldn't consider themselves finished, says Ballenger, the planner in Chapel Hill, N.C. "Think of borrowing as the entry strategy for your client," he says. "But the exit strategy is just as important. You need to help your client come up with a plan to pay off the loan."

To further stave off future cash crunches, Rick Rodgers, the founder of Rodgers & Associates, a fee-only financial planning firm in Harrisburg, Pa., encourages clients to think long term about big-ticket items during their annual reviews. "We ask clients to tell us if they are going to need a new car or are going to want to purchase a house at the shore," he says. This way, the firm can help them come up with financing plans before they are in emergency mode.

For Ty J. Young, president of an investment advisory firm in Atlanta that bears his name, that means clients should have three to six months' worth of living expenses socked away. "Things happen and you have to have cash to deal with them," he says. "Yes, there are borrowing options. But the best option right now is not to need a cash infusion at all."


Kyle Spencer, a New York freelancer, has written for The New York Times, The Philadelphia Inquirer and The Miami Herald.

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