In the unpredictable journey of life, unforeseen events such as sudden medical crises or loss of job or business can lead individuals to consider liquidating their investments. Capital markets, with their long-term wealth creation potential and higher interest rates compared to traditional schemes, have become a preferred investment mechanism in India.
Despite being sentiment-driven, the capital market is viewed as a successful example of achieving high returns over the long term.
However, liquidating long-term investments for short-term financial needs is not always a wise decision, especially when alternative instruments like loan against securities exist.
This innovative financial tool, offered by both banks and Non-Banking Financial Companies (NBFCs), allows capital market investors to raise funds against their shares without the need to sell them.
Understanding the Financial Landscape
Data reveals that Indian households allocate their investments as follows: 49.4% in property, 15.1% in bank deposits, 15% in gold, 6.2% in insurance funds, 5.7% in mutual funds, and 4.8% in equities. India boasts substantial assets but often faces liquidity challenges.
Liquidity, in this context, involves unlocking assets by exchanging them for their market value. This is where secured credit, such as loans against securities, plays a crucial role in systematically building the economy.
Historically, Indians have favoured secured credit, including home, agricultural land, gold, and vehicle loans. Secured loans have consistently represented over 70-75% of the Indian lending ecosystem by total value. As digitization advances, consumers expect to leverage digital assets seamlessly for credit, leading to a decentralisation of pledging.
The Role of Loan Against Securities in Supporting Business Owners and Startups
1️⃣ Working Capital Management:
A loan against securities provides businesses with the flexibility to manage their working capital effectively.
Entrepreneurs can use the funds to bridge temporary cash flow gaps, maintain inventory levels, pay suppliers, or cover day-to-day operational expenses. This ensures smooth business operations and enables sustainable growth.
2️⃣ Expansion and Investment Opportunities:
Securing a loan against securities empowers business owners to seize expansion and investment opportunities.
Whether entering new markets, acquiring assets, or launching new products or services, the funds obtained can fuel growth initiatives and facilitate strategic business expansion.
3️⃣ Debt Consolidation and Refinancing:
Entrepreneurs can leverage a loan against securities for debt consolidation or refinancing existing liabilities.
By consolidating high-interest debts into a single loan with a more favorable interest rate, businesses can streamline their debt management, reduce overall interest expenses, and improve cash flow and financial stability.
4️⃣ Business Continuity and Resilience:
Access to funds through a loan against securities ensures business continuity and resilience during challenging times.
Whether facing unexpected expenses, economic downturns, or industry disruptions, the availability of funds can provide a safety net and help businesses weather uncertainties.
Key Considerations and Benefits
Opportunities for Startups:
- Seed Funding and Initial Capital: Startups often face challenges in securing initial capital. Loan against securities provides a viable option to raise funds without diluting ownership or resorting to high-interest loans.
- Research and Development: Innovation and research are crucial for startups. The funds obtained through a loan against securities can be channeled into research and development activities, fostering innovation and competitiveness.
- Attracting Investors: A strong financial position, supported by loans against securities, can make startups more attractive to potential investors. It showcases financial stability and the ability to manage resources effectively.
- Scaling Operations: As startups grow, there’s a need for scaling operations. The flexibility offered by loans against securities allows startups to expand operations, hire talent, and take advantage of growth opportunities.
Tech-Driven Ease in Accessibility:
- Digital Platforms and APIs: With the progress of digitization, consumers can leverage digital assets seamlessly at various touchpoints. APIs increase scalability, allowing users to avail credit through digital platforms they use daily.
Loan Terms and Leverage:
- Better Loan Terms: Secured loans typically offer better terms, including interest rates below 10.5%, increased LTV as more assets are digitized, and flexible loan durations based on asset longevity or maturity.
- Leveraging Long-Term Holdings: Investors can continue holding long-term assets such as stocks and mutual funds while easily leveraging them for credit. Loan durations are based on asset longevity or maturity, with convenient repayment options.
At Rurash Financials we help you connect with trusted lenders and navigate the world of loans against securities, here are some of the features for LAS facilitated by us:
- Easy and convenient online process.
- Pay only interest on the monthly outstanding loan amount.
- Swap your pledged securities hassle-free.
- Choose from a wide range of approved securities.
- Enjoy personalized support with a Designated Relationship Manager from Rurash Financials.