Business Owner? Can a Loan Against Securities Help You Raise Working Capital Without Selling Assets?

For many entrepreneurs and business owners, the ability to access funds quickly can mean the difference between seizing an opportunity and missing out. Working capital is often tied up in inventory, receivables or ongoing projects, leaving little room for expansion or urgent needs. Traditionally, business owners either dip into savings or liquidate assets to raise funds. But what if you could unlock the value of your investments without actually selling them?

That is where a Loan Against Securities (LAS) comes in. This unique credit facility allows you to pledge approved securities, such as shares, mutual funds, ETFs, bonds or even life insurance policies, in exchange for instant liquidity. Depending on the security pledged, the loans can be Loan Against Shares, Loan Against Mutual Funds, Loan Against Insurance Policies etc.

What is a Loan Against Securities?

A Loan Against Securities is an overdraft facility offered by leading banks like ICICI Bank, which enables you to borrow money against your investments. Instead of liquidating shares or redeeming mutual funds, you pledge them as collateral and continue to enjoy market-linked growth. The loan is sanctioned as an overdraft, giving you the flexibility to withdraw funds as needed and repay whenever possible.

Unlike a traditional loan, interest is charged only on the amount utilised and for the period it is used. This makes it highly efficient for meeting temporary or seasonal cash flow gaps.

Advantages of Loan Against Securities for Business Owners

1. Preserve Your Investments
   Selling investments may give you quick cash but it takes away your chance to benefit from long-term market gains. With a Loan Against Securities, you retain ownership while accessing liquidity.
   
2. Quick and Convenient Access
   Minimal documentation and simple digital processes make LAS one of the fastest ways to raise funds. For example, ICICI Bank allows customers to apply through Internet Banking or the iMobile app and get funds disbursed directly into an overdraft account.
   
3. Flexible Overdraft Facility
   Unlike a fixed-term loan, LAS operates like an overdraft. You can borrow as much or as little as you need within the sanctioned limit, making it ideal for businesses with unpredictable cash flows.
   
4. Attractive Interest Rates
   Since the loan is secured against your investments, interest rates are lower than unsecured borrowing options. This can significantly reduce financing costs for businesses.
   
5. No Prepayment Charges
   Many banks do not levy penalties for repaying early. This gives business owners the freedom to close or reduce outstanding balances as soon as cash flows improve.

Eligible Loan Value Against Different Securities

When applying for a Loan Against Securities, the amount sanctioned depends on the type of investment you pledge. Here is a quick overview:

• Shares: Up to 50% of the total value, capped at ₹20 lakh.
  
• Life Insurance Policies: Minimum ₹50,000, maximum limit as per the Bank’s Credit Approval Authority.
  
• Equity Mutual Funds: Up to 50% of the total value, capped at ₹20 lakh.
  
• Debt Mutual Funds: Up to 80% of the total value, maximum limit decided by the Bank’s Credit Approval Authority.
  
• Exchange Traded Funds (ETFs): Up to 50% of the value, subject to the Bank’s Credit Approval Authority.
  
• Fixed Maturity Plans (FMPs): Minimum ₹1 lakh, maximum limit as per the Bank’s Credit Approval Authority.

By pledging diverse instruments, business owners can maximise their loan eligibility without disturbing their investment strategy. Since LAS is linked to market value, the eligible loan amount may change with fluctuations in the security’s price. Additionally, pledge creation and closure charges may apply as per the depository’s schedule.

How Loan Against Securities Works in Practice?

Consider a business owner who has a portfolio of equity mutual funds worth ₹10 lakh. Instead of redeeming them, they can pledge their securities with a bank to access up to ₹5 lakh (50% of portfolio value). The sanctioned overdraft can be used to pay vendors, manage payroll or finance a short-term project.

If only ₹2 lakh is withdrawn, interest is charged only on that amount until repayment. The remaining sanctioned limit is available as a safety net for future needs.

Why LAS is Better than Selling Assets?

1. Avoid Capital Gains Tax: Liquidating shares or mutual funds may trigger tax liabilities. Pledging them helps avoid premature taxation.
   
2. Continue to Earn Dividends and Returns: Even while pledged, investments can keep earning dividends, bonuses or interest.
   
3. Maintain Long-term Strategy: By not selling, you avoid disrupting your investment plan while solving short-term liquidity issues.

Steps to Apply for Loan Against Securities

You can apply for LAS through digital platforms of leading banks like the ICICI Bank. It is simple and quick. Here are the steps to apply when the security pledged is shares. When pledged security is shares, it’s called Loan Against Shares:

Through Net Banking

1. Log in to your Net Banking account
2. Click on ‘Cards and Loans’, then go to ‘Loans’ and select ‘Loan Against Shares’
3. Select your shares for pledging
4. Provide FATCA (Foreign Account Tax Compliance Act) details and accept the Terms & Conditions
5. Access funds through your new Overdraft Account.

Through Mobile Banking App like the iMobile App.

1. Log in to your mobile banking app
2. Go to ‘Get Instant Loans / Offers’ and select ‘Loan Against Shares’
3. Select your shares for pledging
4. Provide FATCA (Foreign Account Tax Compliance Act) details and accept the Terms & Conditions
5. Access funds through your new Overdraft Account

The entire process is paperless and designed for convenience, making it suitable for busy business owners who need urgent funds.

When Should Business Owners Consider LAS?

A Loan Against Securities is most effective when:

• You need short-term working capital for projects or operational expenses
  
• Market conditions are favourable, and you want to avoid selling investments at lower valuations
  
• You want flexible access to funds without a long-term repayment commitment
  
• You prefer lower interest rates compared to other unsecured loan options
  

Final Thoughts

For business owners, raising capital without straining finances or sacrificing investments is always a priority. A Loan Against Securities offers an efficient solution by unlocking the value of your portfolio. With benefits such as quick approval, flexible overdraft facilities and attractive interest rates, this product is increasingly becoming the go-to choice for entrepreneurs seeking liquidity.

ICICI Bank, for instance, offers a robust LAS facility with minimal documentation, digital access through the iMobile app, and no prepayment charges. This makes it easier for businesses to bridge short-term cash flow gaps while keeping their long-term investment goals intact.

In today’s dynamic business environment, having the ability to utilise your securities for working capital without selling them can give you the financial edge needed to grow and expand.

Pranab Bhandari

Pranab Bhandari is an Editor of the Financial Blog “Financebuzz”. Apart from writing informative financial articles for his blog, he is a regular contributor to many national and international publications namely Tweak Your Biz, Growth Rocks ETC.