A loan against securities or loan against shares is a loan facility given to customers in which the loan bearer needs to pledge its security as collateral to avail of a loan. It has multiple types such as loans against insurance, loans against MFs, loans against National Savings Certificates or more.
A loan against securities is popular among investors as it is an easy way to get a loan without compromising your security. Also, it allows you to receive a loan of up to 80% on multiple financial instruments.
This is a unique kind of service that enables the bearer to take advantage of dual service viz perpetuating ownership on your investment along with receiving their benefits.
A loan against security is generally offered as an overdraft facility in which you need to pay interest only on the loan amount you use and the period you use for it. This can be done immediately after the securities you offer for the collateral.
A loan against shares is considered one of the secured forms of loans that can be given against the securities present in your account. The following are the features of loans against shares:
Following are the eligibility criteria for Loan Against Securities
Banks and NBFCs have the authority to sanction loans against securities. Here, we will help you to identify your preferred creditor:
AreaBankNBFCMargin Requirement50% against equity/equity-oriented mutual funds and lenders’ discretion on debt/ debt-based mutual funds.50% against equity/equity-oriented mutual funds and lenders’ discretion on debt/ debt based mutual funds.Capitalisation on Loan Amount10 Lakh against physical shares, 20 Lakh against Demat sharesNo Cap on the amount of LoanLoan ProcessingTime consuming processEasy and Fast Process.
It is preferred to take a loan from NBFC as compared to a bank as it is the safe, fast yet most effective way to avail of a loan without much hassle.
There are different purposes for taking a loan against shares which can be mentioned below:
1) Working capital requirement for business:
Many SMEs take loans against securities just to expand their business. With this new loan amount, businesses usually fulfill their daily working capital requirement which in turn enhances their profits and growth.
2) Business Expansion:
This is the most valid reason SMEs take loans against their securities to increase scalability. This will help businesses to work on new products or open new branches in different cities.
3) Investment in Capital Market:
If you want to increase your investment capital and have confidence in your stock picks, then taking out a loan can be a good option for you as getting a loan on your present investment will help you raise future investments as well.
4) Other Personal Usage:
Loans against shares can also be used for personal purposes such as buying a home, a child’s education and marriage, etc.
Parameters for Credit Underwriting
The Bank or NBFC reviews your loan application to check your creditworthiness before giving you a loan. Here are the following parameters:
1) Checking Client’s Profile, Security Provider and more:
Lenders shall check for market reputation and decide the credibility based on the number of years you have been in a business that is known for vintage.
2) Security Analysis:
In security analysis, the creditors take a detailed insight into your financial securities. He determines the proper value of the security, keeping in mind the several fluctuations happening in the market.
3) Financial Statement:
You need to submit all the necessary financial documents such as the cash flow statement, balance sheet, income statement of your business.
Can I Get a Loan Against My Securities?
Yes, you can. A loan against shares is offered against the securities you want to pledge your holdings as collateral. This will help you to meet new investment and liquidity requirements.
What is the Concept of Loan Against Securities?
Loan against shares enables borrowers to get loans against financial securities such as bonds, stocks, mutual funds, insurance to meet your requirements. You can apply for a loan against shares for your business purposes or in case of urgent financial aid.
How many loans Can I Get Against Securities?
You can get a loan of Rs 20 Lakh against your securities.
Can I Get a Loan on Equity Shares?
Yes. you can get a loan on equity shares where you can pledge shares in the form of equity to avail the benefit of the loan.
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Source: SEBI study dated January 25, 2023 on “Analysis of Profit and Loss of Individual Traders dealing in equity Futures and Options (F&O) Segment”, wherein Aggregate Level findings are based on annual Profit/Loss incurred by individual traders in equity F&O during FY 2021-22.