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Tata Capital > Blog > Term Loan > All You Need to Know About IPO Financing

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All You Need to Know About IPO Financing

All You Need to Know About IPO Financing

An Initial Public Offering or IPO offers privately-held companies a leeway to sell shares to the public and raise funds. The company loses its private status after selling the first share and becomes a listed company whose shares are up for a trade on a stock exchange.

Any company, whether new or old, can become public by issuing an IPO. The company can add new shares on the market after selling the old shares to raise fresh capital. The shares are mainly exchanged in an open market and accessible to the general public, who can sell them further to make a profit in a short time. As a result, IPOs offer highly lucrative opportunities for investors in India.

However, in cases of oversubscription – when the company has more buyers than issued shares – share allotment is typically in favour of buyers with more shares. For better ROIs, investors require additional funds. In such cases, IPO financing or funding can help maximise profit from IPOs.

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Primarily reserved for HNIs and institutional investors, IPO financing has acquired traction in recent years as the IPO market witnessed a steady boom. IPO financing allows investors to harness a considerable amount to invest in the primary market for enhanced share allotment and earn substantial returns in a short time.

Here is all you need to know about IPO financing:

How does IPO financing work?

IPO financing is a type of short-term commercial loan borrowed to buy shares in a primary stock market, mainly by HNIs. Initially, the investor needs to pay a small margin upfront to avail the loan amount, which is usually estimated on a case-to-case basis; while the lender covers the rest of the funds for IPOs.

Moreover, the loan tenure will depend on the market trends and the nature of the purchased shares. The loan tenures for IPO financing typically last from seven days to three months. Interest rates on the loans usually differ from lender to lender, but the customarily charged rates remain between 8 to 12%.

Most importantly, the upfront margin and loan amount remain locked in the bank account. In case the investors earn a profit from the shares, they need to apply to the lender for funds procurement. But in case of losses, lenders recover the money from the margin paid.

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Investors who fund IPOs enjoy a host of benefits, including:

  • Gain faster profits, usually in 6-10 days.
  • Investors can buy more than one share for improved share allotment.
  • The lender primarily handles the end-to-end process.
  • The investor only pays a portion of the IPO marginal funds, the lender supplies rest.
  • Even securities or cash is applicable for marginal funding in IPO.

As a mean for wealth creation, IPO financing is undoubtedly a convenient yet lucrative choice. You can obtain quick and competitive commercial loans to meet your financial needs. We offer favourable loan terms and a hassle-free documentation process to help you procure necessary funds in no time. Benefit from our bespoke financial solutions today!

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