Loan Against Shares is a type of loan that offers quick access to funds by using shares as collateral. It is a secured loan that can help investors to monetize their stock holdings without selling them. This type of loan is also known as Loan Against Securities (LAS) and is available to both individuals and companies.
Eligibility for Loan Against Shares
As a requirement for loan against shares eligibility, the borrower must own shares in a publicly listed company. The shares must be free from any encumbrance, meaning that they should not have any liens, pledges, or mortgages against them. The lender will typically value the shares and provide a loan amount based on the market value of the shares.
Apart from the shareholding criteria, the borrower must also meet certain credit requirements to be eligible for Loan Against Shares. The lender will verify the creditworthiness of the borrower by checking their credit score, financial statements, income tax returns, and other documents. The lender will also assess the risk associated with the borrower and the underlying shares to arrive at a loan-to-value (LTV) ratio.
Loan Against Shares – Features and Benefits
Loan Against Shares has become a popular financing option for individuals and businesses due to its various features and benefits. Here are some of the key features and benefits of Loan Against Shares.
1. Quick Disbursement – Loan Against Shares has a quick processing time, which means the borrower can receive the funds in a matter of days. This makes it an ideal financing option for urgent needs, such as medical emergencies, business expansion, or debt consolidation.
2. Low-Interest Rates – Loan Against Shares offers lower interest rates compared to unsecured loans, as the shares act as collateral. Moreover, the interest rates on Loan Against Shares are usually linked to the prevailing market rates.
3. High Loan Amount – The loan amount in Loan Against Shares is calculated based on the market value of the shares. Therefore, borrowers can access a higher loan amount compared to other forms of loans, subject to a maximum LTV ratio.
4. Flexible Repayment Terms – The repayment terms in Loan Against Shares are also flexible. Borrowers can choose to repay the loan through EMIs or lump sum payments, depending on their cash flow situation.
5. No Restriction on End Use – There is no restriction on the end use of the funds obtained through Loan Against Shares. Borrowers can use the funds for any purpose, such as personal expenses, business requirements, or investments.
Loan Against Shares – Risks and Drawbacks
Though Loan Against Shares has various benefits, it also comes with some risks and drawbacks that borrowers should be aware of before availing themselves of this type of loan.
1. Market Risk – The value of the shares used as collateral can be volatile and subject to market risk. In case the value of the shares drops significantly, the borrower may have to provide additional collateral, or the lender may demand repayment of the loan.
2. Margin Calls – The lender may call for a margin, i.e., additional payment from the borrower if the value of the shares falls below a certain level. Margin calls can put additional financial pressure on the borrower and affect their overall creditworthiness.
3. Limited Liquidity – If the borrower needs to sell the shares used as collateral to meet their financial obligations, they may not be able to sell them quickly due to market conditions. This can lead to delayed payments and financial stress.
Conclusion
Loan Against Shares is an attractive financing option for investors who wish to unlock the value of their shareholdings without selling them. However, borrowers should weigh the risks and drawbacks involved before availing themselves of this type of loan. It is advisable to work with a reputed lender who follows industry-standard practices and provides transparent information about the loan terms and conditions. By doing so, borrowers can make an informed decision and choose the best financing option for their needs.
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