Your business is enjoying its prime – customers are happy, revenue is flowing in, financial goals are being met. Then, suddenly out of nowhere, you’re struck with a financial emergency! No business is exempt from such emergencies, especially in the budding stages. Something as small as a sudden expense, cost increase or heavy competition may overthrow your life’s worth of efforts in an instance. During such critical periods, your prime concern would be to meet short-term operational needs so as to not face insolvency. In order to meet their working capital funding requirements, a lot of businesses opt for working capital loans but if your organization’s credit scoring is just enough to land you an unsecured working capital loan, the flip side would be higher interest rates. Moreover, getting your personal assets secured as collateral is not a wise move. Hence, for those who do not have any personal assets to pledge as collateral, such periods of crises call for a different secured loan option, issued against a business’ investments – Loan Against Securities.

What is Loan Against Securities and How Does it Work?

Loan Against Securities is a type of loan granted against shares, mutual funds, insurance policies or bonds as collateral. These loans are offered as an overdraft facility and hence, one can withdraw any amount of money up to the specified loan limit (This limit varies with lenders and is usually based on the value of assets pledged). Interests are charged only on the withdrawn amount for a given period.
Perhaps, the best part about loan against securities is that you will continue to receive all the benefits of your investments, such as bonuses and dividend, even if they are pledged to the lending institution.

Which Assets Can You Pledge?

The assets such as (equity shares and demat shares), non-convertible debentures, mutual funds, bonds, and Government schemes are accepted as collateral by almost every bank and reputed financial institutions like Tata Capital. If you do not possess assets of your own, you may pledge assets belonging to your blood relatives who are above the age of 18. In such cases, your relative must act as co-applicant by signing the overdraft agreement.

Documentation Required

Most lending institutions will ask for basic documents such as PAN card, bank statements, KYC documents (address proof, identity proof, PAN Card photocopy), income proof in addition to certain specific documents based on the following categories – salaried individuals, self-employed, partnership firms and limited companies. You can check the eligibility criteria and documentation requirements on the respective lending institution’s website. You may also approach the nearest office of your lender.

Interest and Other Fees

Most institutions charge a processing fee of 1-5% of the sanctioned loan amount, interest (rates may vary among lenders), penal interest of 3-5% of the outstanding amount + GST (charged per month), and miscellaneous charges – bounce charges, mandate rejection service charge, CCOD annual maintenance charge, foreclosure charges, etc.

To secure business funding with flexible withdrawal and repayment options, apply for a loan against securities through Tata Capital. They help you take care of all your personal needs as well as meet contingencies by providing loans ranging from Rs. 5 lakhs to Rs. 20 crores.

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