Access to capital remains a major challenge for many MSMEs in India. In an effort to address this challenge, banks, and financial institutions have started offering a loan against shares for small businesses in India – an alternative source of financing.
One of the key benefits of loans against shares for small businesses in India is that it allows them to access capital without sacrificing ownership of their shares.
Unlike traditional loans, where the lender may take possession of the collateral in the event of default, with a loan against shares, the small business retains ownership of the shares and can sell or trade them if they choose. This gives small businesses greater control over their investments and provides them with additional security.
Another advantage of loans against shares for small businesses in India is that it provides them with access to a larger pool of capital. Traditional loans are often limited by the amount of collateral a small business can provide. With a loan against shares, a small business can borrow against the value of their shares, regardless of the size of their investment portfolio. This allows small businesses to access larger amounts of capital, which can be especially useful for businesses that require significant investments in equipment, real estate, or other assets.
MSMEs in India can take advantage of loan against shares to meet their working capital needs, such as paying salaries, purchasing raw materials, or investing in new equipment. The loan amount depends on the value of the shares. In addition, loan against shares provides MSMEs with flexible repayment options and can be used for a variety of purposes.
MSME loan against shares in India is also a flexible source of financing. While traditional loans often have strict repayment terms and schedules, a loan against shares provides MSMEs with the flexibility to repay the loan over time, typically with interest. This makes it a cost-effective source of financing, as SMEs can repay the loan in a manner that is most suitable for their business operations and cash flow.
The interest rates of loan against shares for MSMEs in India could vary depending on the lender, the value of the shares, and the credit worthiness of the borrower. However, a loan against shares is generally considered to be a more cost-effective source of financing compared to traditional loans, as the interest rates are typically lower. Additionally, the loan can be structured to provide them with the flexibility to choose the repayment terms that work best for them.
Loan against Shares for MSMEs in India Eligibility
The following are some of the most common eligibility criteria for loan against shares for MSMEs in India:
- Company Status: To be eligible for a loan against shares, the SME must be a registered company in India and be in good standing with the government.
- Shareholdings: SMEs must hold a portfolio of shares that are eligible for use as collateral. The type of shares that are eligible will vary depending on the lender, but typically include shares in well-established, publicly traded companies.
- Credit History: The SME must have a good credit history, with no late payments or defaults on previous loans.
- Financial Stability: The SME must be financially stable, with a track record of profitability and positive cash flow.
- Age of Shares: The shares being used as collateral must be at least three years old, in order to be considered eligible for a loan against shares.
- Market Value of Shares: The market value of the shares being used as collateral must be sufficient to cover the loan amount.
- Purpose of Loan: The loan must be used for business purposes, such as expanding operations, purchasing equipment, or financing working capital.
Generally, MSMEs must have a sizable number of shares and a good credit history to be eligible for a loan against shares. MSMEs should also provide proof of income and other financial documentation to the lender, as well as a list of the shares they are using as collateral.
With the growth of digital technology, MSMEs can now apply for loans against shares online and get instant approval. Many financial institutions now offer quick digital loan against shares with instant approval, allowing MSMEs to access financing quickly and easily, without having to visit a branch or wait for a long time for approval. This type of loan is ideal for MSMEs who need working capital in a hurry, as the loan can be disbursed within a matter of hours or days.
A loan against shares is a cost-effective and flexible source of financing for MSMEs in India. By leveraging their investment in shares, MSMEs can access capital without sacrificing ownership, and support their operations and growth.
With the growth of digital technology, MSMEs can now apply for a loan against shares online, and get instant approval, making it easier than ever to access “on demand” financing. Be an established MSME or an enterprise just starting out – a loan against shares is an option worth considering for your business financing needs.