How to Secure ESOP Financing - A Complete Guide

ESOPs (Employee Stock Ownership Plan) are no longer a foreign concept in the Indian market since many reputable companies offer them. This is a compensation plan offered by employers to their employees. The underlying concept is to retain talented employees by offering them a chance to buy shares of the company they are working for. It is an organization's way of rewarding hard-working employees for their dedication.

What is ESOP financing?

In ESOP financing, financial institutions offer loans to employees to help them exercise their option to purchase the shares allotted to them through ESOPs. In such situations, employees do not generally use their money or investments. Owning ESOPs are an effective way by which employees can directly take part in the company’s success Holding shares also enable the employees to reap financial benefits because they can sell off the shares allotted to them through ESOPs at higher rates.

Through ESOP financing, also called ESOP funding, an employee gets an option to avail funds against shares allotted to them without waiting for the vesting period to end. They can use the loan facility to buy and hold equity shares of their employer’s company and sell off the shares anytime they want to create wealth. Therefore, ESOP financing is often described as a quick way to avail funds.

The loan amount granted against ESOPs usually depends on the grant price, market price, and vesting period of the ESOPs.

How does ESOP funding work?

ESOPs are usually set up as trusts, and ESOP financing can be described as a loan facility. This provision is available against shares an employer has granted or allotted in their employee’s name. Allotments depend greatly on the employer's discretion.

After the employer has completed the allotments, ESOPs will remain in the trust fund until the vesting period. After completing the vesting period, the person holding the ESOP can exercise their options, such as buying the shares.

Generally, people receive an allotment letter that mentions the details of the number of shares allotted, and the timeframe during which they can exercise the option.

Did you know that when you invest in a company bond, you are not buying shares you are actually lending money to a business? In return, the company pays you interest regularly and promises to give back your original investment after a certain period. It’s a simple, predictable way to grow your money, especially if you prefer stable returns over market swings. Company bonds come in different types secured, unsecured, convertible, non-convertible each offering varying levels of risk and reward. Whether you’re a cautious saver or a seasoned investor, there’s likely a bond that fits your strategy.

But what if you need funds urgently and don’t want to sell your investments?

Use your bonds, shares, or mutual funds to get instant liquidity. Get a loan against securities without disturbing your portfolio. Apply now

How company bonds work?

Let us break it down. When a company needs money to launch a new product, expand its operations, or refinance old loans it may choose to issue company bonds instead of borrowing from a bank. These bonds are offered to investors like you, who lend money to the company for a fixed term.

In exchange, the company agrees to:

• Pay you interest at a pre-decided rate (called the coupon rate), usually every six months.

• Return your full investment (also known as the face value) on the maturity date.

It is a win-win, the company gets the capital it needs, and you earn a steady income without worrying about stock market volatility.

Already hold company bonds? You can unlock their value without selling them. Apply now

Types of company bonds

Not all company bonds are the same. There are several types based on how risky they are, whether they can be converted into shares, or if they’re backed by company assets. Here's a quick rundown:

• Investment-grade bonds – Issued by financially strong companies with low risk.

• High-yield bonds – Also called junk bonds, they offer higher returns but carry more risk.

• Convertible bonds – These can be converted into a fixed number of company shares.

• Callable bonds – The company can buy them back before maturity.

• Secured bonds – Backed by company assets, so they’re less risky.

• Unsecured bonds – Not backed by assets, also known as debentures, and slightly riskier.