Financing is a big concern for every small business owner. Whether you want to expand your business or take care of daily operations, you need to find the best way to fund your business. At this juncture, a Loan against Shares (LAS) can be an excellent option to meet your financial needs. Here, you can put your shares as collateral against a loan. The best part, you still get to enjoy benefits such as dividends and bonuses during the loan term. But before you take the loan, there are a few things you need to check:
- List of pre-approved shares
Every lending institution puts out a list of shares eligible as collateral for Loan against Securities. So before you apply for the loan, ensure that different lenders accept your portfolio of stocks. Generally, this should not be a big problem because Bajaj Finserv and other lenders allow a comprehensive list of shares as collateral.
- Ownership of shares
Are all the stocks in your name? You need to ask yourself this question when you apply for a Loan against Shares. This is because most lending institutions do not allow you to pledge shares that are in the name of Hindu Undivided Families (HUFs), minors and companies. In addition, this facility is available only to resident citizens of India. Therefore, if you are a Non-Resident Indian (NRI), you cannot avail this loan from Indian lenders.
- Loan amount and portfolio size
The amount of money you avail as loan under LAS is dependent on your portfolio size. For example, Bajaj Finserv offers an amount equal to 50% of your portfolio value as LAS. So if you want a LAS of Rs. 10 lakh, the value of your portfolio should be at least Rs. 20 lakh. It would help if you also remembered that the minimum portfolio size is Rs. 10 lakh and the minimum loan amount is Rs. 5 lakh. But as your financial needs go higher, you can avail a maximum loan amount of Rs. 10 crore under LAS.
- Eligibility criteria
It is critical to check the eligibility criteria of the lending institution before you apply for LAS. You don’t want to go through the entire process only to find out that your application was rejected because you didn’t fulfil a particular criterion.
Here is a list of criteria you generally need to fulfil to avail LAS.
- You need to be a resident citizen of India
- You need to be at least 21 years old
- You need be a salaried or a self-employed individual
- You need to have a regular source of income
- Interest rate
The interest rate on LAS can vary from one lending institution to another. For example, the rate of interest can vary from 8.5% to 12.5%. Factors like creditworthiness and the type of securities pledged can play a big role in determining your interest rate on the loan. You can visit the lender’s official website to find out the interest rate they offer on LAS. And once you find a lender that meets your requirements, you can negotiate for the best rate possible on your loan.
A loan against shares can be a great way to meet your financial needs in a short time span. But ensure you have conducted these checks before you send out your loan application form to lending institutions.