When it comes to expanding your business, one of the biggest challenges is securing the necessary funding. While there are many financing options available, not all of them may be suitable for your specific needs and circumstances. One option that is gaining popularity among business owners is a loan against securities (LAS). In this article, we will explore whether using LAS for business expansion is a smart move, and what factors you should consider before taking this step.
What is a Loan Against Securities (LAS)?
A loan against securities is a type of secured loan that allows you to borrow funds by pledging your securities as collateral. The securities can be in the form of shares, mutual funds, bonds, or other financial instruments. The loan amount that you can get depends on the value of the securities that you pledge. The lender will typically offer you a loan amount that is a percentage of the value of the securities, usually ranging from 50% to 80%. The interest rate for LAS is usually lower than other unsecured loans because it is backed by securities.
Is Using Loan Against Shares for business expansion a smart move?
Using a loan against securities for business expansion is often considered risky but for those who are confident of their plans, it can be the smartest move for several reasons:
- Lower Interest Rates: Loan Against Shares typically offers lower interest rates compared to other unsecured loans. This can be an advantage for business owners who want to keep their borrowing costs low.
- No Restrictions on Usage: Unlike other types of loans that may come with restrictions on how you can use the funds, Loan Against Shares offers flexibility in usage. It can be used to fund business expansion, diversification, or any growth initiative for that matter.
- Quick Disbursement: Loan against shares is a relatively quick and hassle-free way to get access to funds. The loan amount is disbursed quickly once the securities are pledged and the loan application is approved.
- No Need to Sell Securities: Pledging securities for Loan Against Shares allows you to get access to funds without having to sell your securities. This means that you can continue to hold onto your investments and benefit from any potential gains in the future.
- Easy Repayment Options: Loan Against Shares usually comes with flexible repayment options, including the option to prepay the loan without any additional charges.
Factors to Consider Before Using Loan Against Shares for Business Expansion
Factors that you should consider before taking a loan against shares including significant checks like:
- Value of Securities: The loan amount that you can get with LAS depends on the value of the securities that you pledge. You should carefully evaluate the value of your securities before applying for Loan Against Shares to ensure that you can get the required loan amount.
- Risks Involved: Pledging securities as collateral for a loan comes with risks. If the value of the securities falls below the pledged amount, you may be required to pledge additional securities or repay the loan. You should carefully assess the risks involved before taking this step.
- Loan Terms and Conditions: Before applying for LAS, you should carefully review the loan terms and conditions, including the interest rate, processing charges, repayment options, and any other fees or charges that may apply.
- Lender Reputation: It’s important to choose a trusted lender when applying for a loan against shares. Look for lenders with a good track record of offering transparent and reliable services.
Conclusion
Using loan against shares for business expansion can be a smart move for business owners who want to access funds quickly and at a lower cost. However, it’s important to carefully evaluate the risks and factors involved before taking this step. Make sure to choose a reputed lender, carefully review the loan terms and conditions, evaluate the value of your securities, and assess the risks involved before applying for loan against shares.
