Business Loan Against Securities

Apply for a business loan against securities to access fast funds at low rates. Pledge your shares or mutual funds and get high-value financing with simple eligibility.
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3 mins read
26-November-2025

Business loans backed by securities are fast emerging as a preferred funding option for Indian entrepreneurs looking to access capital swiftly without selling off their investments. This financial tool enables businesses to pledge securities such as stocks, bonds, and mutual funds as collateral, unlocking funding based on the value of these assets. The key benefit lies in the ability to retain ownership of the collateral while still obtaining much-needed working capital or expansion funds. Unlike traditional loans, business loans against securities are often processed faster, and interest rates tend to be lower, owing to the reduced risk for lenders. However, understanding the terms, the types of securities accepted, eligibility criteria, and the associated risks is crucial before deciding to opt for this type of financing.

For businesses that find themselves in urgent need of liquidity but are reluctant to sell their investments, a business loan against securities offers a viable solution. The primary advantage of using securities as collateral is that the process is typically quicker than traditional loans, and businesses can continue to benefit from any potential appreciation of the pledged assets. However, as with any secured loan, there are risks involved, such as the possibility of losing the collateral if the loan is not repaid on time. This article delves deep into the various aspects of business loans against securities, offering a comprehensive guide to help you make an informed decision.

What is a business loan against securities?

A business loan against securities is a secured loan where the borrower pledges their financial assets—such as stocks, bonds, mutual funds, or government securities—as collateral to secure funding for their business. The amount of the loan is typically a percentage of the market value of the pledged securities. This type of financing is especially beneficial for businesses that need urgent liquidity but prefer not to sell their investments.

Unlike unsecured loans, which require no collateral, loans against securities offer the advantage of lower interest rates due to the security provided by the collateral. Since the lender has a claim on the assets in the event of non-payment, they are more willing to offer better terms. These loans are often ideal for businesses that have substantial investments but need quick access to funds for expansion, working capital, or meeting other financial needs.

The loan can be used for a wide variety of business purposes, and the borrower can continue to hold ownership of the pledged securities. This flexibility, along with the ease and speed of approval, makes loans against securities an attractive option for business owners who want to access capital without sacrificing their investments. However, it’s important to keep in mind that if the borrower fails to repay the loan as per the agreed-upon terms, the lender has the right to liquidate the pledged assets.

Loan Against Shares
Loan Against Mutual Funds

A business loan against securities offers numerous advantages, making it an appealing choice for many business owners. Here are some of the key benefits:

  • Quick access to funds: One of the most significant advantages of loans against securities is the speed at which the funds are disbursed. Since the loan is secured by assets, the approval process is typically much faster than traditional loan applications, which often involves lengthy documentation and verification processes. This is particularly useful for businesses that need immediate capital for urgent financial requirements, such as paying suppliers or covering operational costs.
  • Lower interest rates: Loans against securities generally come with lower interest rates compared to unsecured loans. The lender's risk is mitigated because the loan is backed by valuable assets, which allows them to offer competitive rates. For businesses, this can translate into lower borrowing costs over time.
  • No need to liquidate assets: By pledging securities as collateral, businesses can unlock capital without selling their investments. This is especially beneficial for businesses that do not want to part with their securities, particularly when market conditions are unfavourable, and they believe their assets may appreciate over time.
  • Higher loan amounts: Since the loan is secured by securities, the lender is more inclined to offer higher loan amounts compared to unsecured loans. The loan amount is usually determined based on the value of the securities being pledged, which can provide businesses with the flexibility they need to address large financial requirements.
  • Retain potential asset appreciation: If the value of the pledged securities increases during the term of the loan, the borrower can benefit from the appreciation while still retaining ownership of the assets. This can be a huge advantage, especially for businesses that have invested in high-growth sectors.

Eligibility criteria for business loans against securities

To apply for a business loan against securities, borrowers must meet specific eligibility criteria set by the lender. These criteria vary slightly across financial institutions but typically include the following requirements:

  • Business type: Most lenders require that the borrower’s business has been in operation for a minimum of two to three years, demonstrating financial stability and the ability to generate steady cash flow. Startups or newly established businesses may find it more challenging to qualify for loans against securities.
  • Eligible securities: The borrower must pledge approved financial assets as collateral. These assets could include stocks, bonds, government securities, mutual funds, or fixed deposits. The lender will assess the market value of these assets to determine the loan amount.
  • Creditworthiness: While the loan is secured by the pledged securities, lenders may still evaluate the borrower’s creditworthiness. A good credit score may result in more favourable loan terms, including lower interest rates.
  • Minimum loan amount: Most lenders have a minimum loan threshold, often around Rs. 50,000, and will typically offer loans that are a percentage of the value of the pledged securities. This percentage can vary, but it usually ranges from 50% to 95% of the securities' market value.
  • Collateral ratio: Lenders will also evaluate the collateral ratio, which is the percentage of the loan relative to the value of the pledged securities. This ratio is typically lower than the actual value of the securities to ensure that the lender is protected in case of market fluctuations.

Once the borrower meets these eligibility criteria, they can proceed with the application process to obtain a loan against securities.

Documents required for business loan against securities

When applying for a business loan against securities, lenders require specific documents to verify ownership of the pledged assets and assess the applicant’s financial profile. These documents help ensure that the securities offered as collateral are valid, market-linked, and eligible for lending. Typically, both business-related and identity documents are required. Here is a list of commonly required documents:

1. Identity proof

  • PAN card
  •  Aadhaar card
  • Passport, voter ID, or driving license

2. Address proof

  • Utility bills (electricity, gas, telephone)
  • Passport
  • Rental agreement or property documents

3. Business proof

  • GST registration certificate
  • Shop Act/Trade license
  • Partnership deed or Memorandum & Articles of Association (for companies)
  • Business PAN

4. Financial documents

  • ITR (usually for the last 1–2 financial years)
  • Bank statements (last 6 months or as required)
  • Audited financial statements for businesses (if applicable)

5. Securities-related documents

  • Demat account statement
  • Portfolio holding report
  • Proof of ownership of mutual funds, shares or insurance policies
  • Latest statement from the financial institution where securities are held

6. Additional documents (if required by lender)

  • NACH mandate form
  • Passport-size photographs
  • Pledge authorisation form for securities

How to apply for a business loan against securities

The application process for a business loan against securities is straightforward and typically involves the following steps:

Step 1: Assess eligibility

Before applying, ensure your business meets the lender’s eligibility requirements, and you have the necessary securities to pledge.

Step 2: Select a lender

Choose a financial institution, such as a bank or NBFC, offering loans against securities. Compare their loan terms, interest rates, and repayment schedules.

Step 3: Submit documents

Provide the required documents, including proof of business registration, identity, address, income, and ownership of the pledged securities.

Step 4: Loan evaluation

The lender will evaluate your business’s creditworthiness and the value of your pledged securities to determine the loan amount and interest rate.

Step 5: Approval and agreement

After the loan is approved, the lender will provide a loan agreement outlining the terms, including the interest rate, repayment schedule, and fees.

Step 6: Disbursement

Once the agreement is signed, the loan amount will be disbursed to your business’s bank account. The pledged securities will be held as collateral until the loan is repaid.

By following these steps, businesses can secure funding against their securities in a timely and efficient manner.

Benefits of business loans against securities

A business loan against securities enables entrepreneurs to use their existing investments to raise funds without selling them. By pledging assets like shares, mutual funds, bonds, or ULIP/endowment insurance policies, businesses can unlock liquidity at competitive interest rates. This loan type is especially useful for working capital needs, expansion, and urgent financial requirements, while still allowing the business owner to retain ownership of their investments. Key benefits include:

1. Quick approval and disbursal

  • The value of securities speeds up eligibility checks
  • Minimum documentation leads to faster sanctions, ideal for urgent business needs

2. Lower cost of borrowing

  • Collateral-backed loans usually carry lower interest rates than unsecured business loans
  • Reduces interest burden and helps maintain better cash flow

3. Retain investment ownership

  • Securities remain in the borrower’s name even when pledged
  • Businesses continue to benefit from dividends, market growth, or interest earnings

4. Flexible end-use of funds

  • Can be used for working capital, equipment purchases, expansion, vendor payments, or emergencies
  • Lenders typically do not impose end-use restrictions

5. Higher loan amounts based on portfolio value

  • The sanctioned amount depends on the market value and stability of pledged securities
  • Larger portfolios can unlock higher credit limits without any additional collateral

6. Option of overdraft/flexi facility

  • Borrowers can withdraw as per business needs instead of using the entire limit at once
  • Interest is charged only on the utilised amount, helping reduce cost further

Repayment options for business loan against securities

A business loan against securities offers flexible repayment choices, helping businesses manage cash flows without financial stress. Since the loan is backed by investments, lenders allow simplified and customised repayment methods. Here are short, clear pointer explanations:

  • EMI-based repaymen: Repay through fixed monthly instalments of principal and interest. Best for businesses with stable income, as it offers predictable repayment and easy budgeting.
  • Interest-only payment: Pay only interest during the loan tenure and settle the principal at the end. Ideal for borrowers expecting future lump-sum inflows, reducing current cash pressure.
  • Flexi/Overdraft facility: Withdraw funds as needed and pay interest only on the amount used. Supports fluctuating working capital needs and helps lower interest expenses.
  • Bullet repaymen: Repay both principal and interest in one lump sum at the end of the tenure. Suitable for short-term borrowing tied to expected future receivables.
  • Part-prepayment option: Prepay a portion of the principal anytime to reduce the outstanding balance and interest cost. Useful when businesses receive surplus funds.

Types of securities accepted as collateral

Lenders accept various types of securities as collateral for business loans. Below is a table of common securities accepted:

Type of security Details
Government bonds Government bonds, which are considered low-risk, are often accepted by lenders.
Corporate bonds Bonds issued by well-established corporations are also eligible, depending on the financial strength of the company.
Stocks Publicly traded stocks in established companies can be pledged as collateral. The value is assessed based on market prices.
Mutual funds Mutual fund units, especially from well-recognised schemes, can be used as collateral.
Fixed deposits In some cases, businesses can pledge fixed deposits with a bank as collateral.



Each type of security has its own valuation criteria, and lenders typically offer a loan amount that is a percentage of the current market value of the securities.

Interest rates and charges

The interest rates and charges associated with business loans against securities depend on several factors, including the type of collateral and the lender’s policies. The common charges include:

Charge type Details
Interest rate The interest rate for business loans against securities typically ranges from 8% to 15% per annum, depending on factors like the collateral type and borrower credit score.
Processing fee Processing fees are generally charged by lenders and may range from 4% to 6% of the loan amount.
Prepayment fee If the borrower repays the loan before the agreed term, lenders may charge a prepayment fee, or no fee at all.
Late payment fee If a borrower misses a repayment deadline, lenders may charge penalties, ranging from 1% to 5% of the outstanding amount.



Understanding these charges is critical before taking out a loan, as they can significantly affect the overall cost of borrowing.

Risks and considerations

While loans against securities offer several advantages, businesses must carefully consider the potential risks associated with this type of financing. One significant risk is the loss of collateral. If the borrower defaults on the loan, the lender has the right to liquidate the pledged securities to recover the loan amount, which could result in the loss of valuable assets. Another risk is market fluctuations. The value of securities, especially stocks and bonds, can fluctuate with market conditions.

If the value of the pledged securities declines significantly, the borrower may be asked to pledge additional collateral or face a reduction in the loan amount. Interest rate risks are also a concern, as some loans against securities come with variable interest rates. If rates rise, the cost of borrowing could increase, leading to higher repayments. Therefore, businesses must carefully assess the loan terms, their ability to repay, and the risks involved before committing to a loan against securities. A thorough understanding of the terms is essential for making a sound decision.

Comparison: Business loan against securities vs. traditional loans

When it comes to securing financing, businesses often have to choose between different loan options. A business loan against securities and a traditional loan are two popular choices, each with its own set of advantages and drawbacks. Below is a detailed comparison:

Criteria Business Loan Against Securities Traditional Loans
Collateral Requires the pledge of securities (stocks, bonds, mutual funds, etc.) as collateral. Typically unsecured, though some may require assets like property or machinery as collateral.
Approval Process Faster approval as the loan is secured by the value of the pledged securities. Longer approval time due to detailed credit checks and documentation.
Loan Amount Based on the value of the securities pledged, typically up to 50-95% of their market value. Loan amount is determined based on business income, creditworthiness, and assets.
Interest Rates Interest rates are generally lower compared to unsecured loans due to the collateral provided.(8%-15%) Interest rates can be higher as these loans are unsecured or have less valuable collateral.
Repayment Terms Repayment terms are usually flexible, depending on the agreement with the lender. Repayment terms are typically fixed, with a set schedule.
Risks Risks include the potential loss of pledged securities in case of default or market fluctuations. Risks include higher interest rates and more stringent eligibility criteria.



In conclusion, loans against securities offer quicker access to capital with lower rates but carry the risk of losing pledged assets, while traditional loans have stricter eligibility but may be better for businesses with limited liquid assets.

Conclusion

A business loan against securities provides a fast and efficient method for unlocking capital without the need to sell valuable assets. It is especially useful for businesses in need of liquidity for growth, expansion, or covering operational expenses. However, like any form of secured lending, it carries inherent risks, including the potential loss of pledged collateral and exposure to market fluctuations. To make the most of this financial tool, businesses should ensure that they fully understand the loan terms, eligibility criteria, and the risks involved. By doing so, they can avoid financial pitfalls and utilise the funds in ways that support their long-term growth. Additionally, businesses must ensure they have a solid repayment plan in place to safeguard their investments. With careful planning and consideration, a business loan against securities can be an excellent financing option to help businesses thrive while preserving their investments for future growth.

Frequently asked questions

What types of securities are eligible?
Common types of securities eligible for loans include stocks, bonds, mutual funds, government securities, and fixed deposits. Lenders typically assess the market value of these securities to determine their eligibility and loan amount. However, the specific types accepted can vary by lender and loan terms. Always check with the lender for their accepted collateral.

How is the loan amount determined?
The loan amount is typically determined by the value of the pledged securities. Lenders generally offer loans up to 50-70% of the market value of the securities. The final amount depends on factors like the type of securities, their value, and the lender’s policies. A higher-value collateral often results in a higher loan amount.

Can I continue to trade my securities during the loan period?
In most cases, you cannot trade or sell the securities pledged as collateral without the lender’s approval. Doing so could violate the terms of the loan agreement. However, some lenders may allow partial pledging or provide flexibility under specific conditions. It’s essential to clarify these terms before signing the loan agreement.

Are there any tax implications?
The interest paid on a loan against securities is generally tax-deductible for business purposes. However, the specific tax treatment depends on the nature of the loan and how the funds are used. Additionally, if the securities are sold to repay the loan, any capital gains tax may apply. Consult a tax advisor for detailed implications.

Who can apply for a business loan against securities?

Individuals, proprietors, partnerships, or private limited companies holding eligible securities like shares, mutual funds, or bonds can apply. Applicants must meet the lender’s credit and documentation requirements to avail the loan.

What is the interest rate for business loans against securities?

Interest rates typically range from 8% to 15% per annum, depending on the type of security pledged, loan amount, and lender's policy. Rates are usually lower than unsecured business loans due to the collateral.

How long does it take to disburse the loan?

Loan disbursal usually takes 24 to 48 hours post document verification and successful lien marking on the pledged securities. Digital processing can make approvals even quicker, especially for existing customers.

Is there a minimum or maximum loan amount?

Loan amounts usually start from Rs. 50,000 and can go up to several crores, based on the value of the pledged securities and lender's LTV policy. Limits may vary across lenders and security types.

What are the benefits of choosing a business loan against securities?

You retain ownership of your investments while unlocking liquidity at lower interest rates. The loan is quickly processed, has flexible repayment options, and doesn’t require selling off your long-term assets.

How much business loan can I get against my shares/securities?

You can get a loan based on the market value and type of securities pledged. Lenders calculate a Loan-to-Value (LTV) percentage, usually ranging from 50% to 80%, depending on asset category and risk.

What is the minimum loan amount for a business loan against securities?

The minimum amount differs among lenders but typically starts from Rs. 1 lakh. Some lenders offer smaller limits under overdraft or flexi facilities, depending on the type and value of securities pledged.

What happens if the value of my pledged securities falls significantly?

If the market value drops, a margin call may be triggered. The borrower must pledge additional securities or make a partial repayment. Failure to comply may lead to the lender selling pledged assets.

Is a business loan against securities secured or unsecured?

It is a secured loan because you pledge financial assets like shares, mutual funds, bonds, or insurance policies as collateral. The security reduces lending risk, helping borrowers receive better interest rates compared to unsecured business loans.

What is the processing time for a business loan against securities?

Processing is usually faster than regular business loans since the collateral is already in financial markets. With proper documentation and demat holdings, many lenders disburse funds within 24–72 hours.

Can I repay my business loan against securities early? Are there prepayment penalties?

Yes, most lenders allow part-prepayment or full foreclosure. Penalties depend on the loan type. Flexi or overdraft facilities generally have no prepayment charges, while EMI-based loans may carry nominal fees.

How is the interest calculated on a business loan against securities?

Interest is calculated on the amount borrowed or utilised. In EMI loans, interest applies on the full sanctioned principal. Under overdraft/flexi facilities, interest is charged only on the amount withdrawn, helping reduce overall borrowing cost.

What is the difference between a loan against shares and a business loan against securities?

A loan against shares is limited to equity holdings, while a business loan against securities can include multiple assets like mutual funds, and insurance policies. The latter offers higher limits and broader portfolio-based flexibility.

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