Running a business means dealing with cash flow gaps. You might need to pay suppliers before customers pay you, invest in inventory before the festive season, or cover payroll during a slow month.

Traditional working capital options — business loans, overdrafts, and credit lines — often come with heavy documentation, high interest rates, and long approval times.

Loan against securities (LAS) offers a different approach: if you or your promoter group have personal investments in mutual funds, shares, or other securities, you can borrow against them to fund your business needs — quickly and at a lower cost.

What is Working Capital?

Working capital is the money a business needs for its day-to-day operations. It covers:

  • Payroll — Salaries and wages for employees
  • Inventory — Raw materials or finished goods
  • Rent and utilities — Office, warehouse, or factory costs
  • Supplier payments — Bills that are due before customer receipts come in
  • Marketing and operations — Running costs that keep the business functioning

The need for working capital is often seasonal or cyclical. A retailer needs more working capital before Diwali. A manufacturer needs it when taking on a large order. A professional services firm needs it when clients pay on 60-90 day terms.

Why LAS Works Well for Working Capital

1. Speed

Business opportunities and cash flow gaps do not wait. Traditional business loans can take weeks to process — applications, financial statements, projections, collateral valuation, and committee approvals.

LAS can be processed in hours to a single day. If you have eligible securities, the lien is marked digitally, and funds are disbursed quickly. This speed is critical when you need to pay a supplier today or grab a time-sensitive opportunity.

2. Lower Interest Rates

Working capital loans for small and medium businesses typically carry interest rates of 14% to 22% depending on the business profile and lender.

LAS interest rates are typically 9% to 12% — significantly lower because the loan is backed by liquid, transparent collateral. Over a few months, this rate difference translates to meaningful savings.

3. Flexible Repayment

Most LAS facilities are structured as overdraft (OD) accounts. This means:

  • You have a sanctioned limit based on your portfolio value
  • You draw only what you need, when you need it
  • You pay interest only on the amount actually used
  • You can repay anytime without prepayment penalties
  • The limit refreshes as you repay

This is far more flexible than a term loan with fixed EMIs. If you need ₹5 lakh this month and ₹2 lakh next month, you draw accordingly. If a client pays you early, you repay immediately and stop the interest clock.

4. No Impact on Business Credit

Business loans appear on your business credit profile. If your business already has significant borrowings, adding more can affect your ability to get future credit.

LAS is typically taken in an individual capacity against personal investments. While it appears on your personal credit report, it does not add to your business debt burden.

5. Personal Investments Stay Invested

Perhaps the biggest advantage: your mutual funds, shares, and other securities continue to earn returns while you use them as collateral for business needs. Your personal wealth-building plan stays on track.

Practical Use Cases

Seasonal Inventory Build-Up

A clothing retailer needs ₹15 lakh to stock inventory for the festive season. Sales will generate the cash to repay within 2-3 months.

Without LAS: Take a business loan at 18% with 2% processing fee. Fixed EMIs for 12 months even though the money is needed for only 3 months.

With LAS: Draw ₹15 lakh from the OD facility. Repay as festive sales come in. Interest for 3 months at 10.5% = ~₹39,375. No processing fee. No EMI obligation after repayment.

Bridging a Payment Gap

A consulting firm completed a ₹20 lakh project. The client pays on 60-day terms. But the firm needs to pay its team this month.

Without LAS: Use a business overdraft at 16% or delay vendor payments (damaging relationships).

With LAS: Draw ₹10 lakh, pay the team, and repay in 60 days when the client pays. Interest for 2 months at 10.5% = ~₹17,500.

Equipment or Capital Expenditure

A small manufacturer needs ₹8 lakh for a machine upgrade that will increase production capacity. The machine will pay for itself in 6 months through additional revenue.

Without LAS: Apply for an equipment loan (2-3 week processing time, 14-16% interest, plus processing fee).

With LAS: Get funds the same day. Install the machine immediately. Repay over 6 months as revenue increases.

Which Securities Can You Use?

As a business owner, you can pledge:

  • Equity mutual funds — Both direct and regular plans from eligible AMCs
  • Debt and liquid mutual funds — Higher LTV ratios (up to 80%)
  • Listed shares — Shares held in your demat account (subject to the lender’s approved list)
  • ETFs and bonds — In some cases

The key requirement is that the securities must be in your name (the individual borrower). Business-held securities may have different rules.

Things to Consider

Margin Calls

If the market value of your pledged securities drops below the lender’s threshold, you may need to either pledge more securities or repay part of the loan. For business working capital, this means you should:

  • Not borrow the maximum available
  • Keep a buffer of 20-30% above the minimum collateral requirement
  • Avoid pledging highly volatile small-cap stocks if possible

Separating Personal and Business Finances

Using personal investments to fund business operations is common for small business owners and entrepreneurs. However, be mindful of the boundary:

  • The loan is your personal liability, regardless of how the funds are used
  • If the business faces difficulties, your personal investments are at risk
  • Borrow only what the business can repay within a reasonable timeframe

Tax Considerations

The interest paid on a loan used for business purposes can be claimed as a business expense, potentially reducing your tax liability. Maintain clear documentation showing that the borrowed funds were used for business purposes. Consult your tax advisor for the specifics.

When NOT to Use LAS for Business

  • If the business needs long-term capital (years, not months) — a business term loan or equity investment may be more appropriate
  • If the cash flow gap is a sign of a deeper business problem — borrowing against personal assets to fund a struggling business can be risky
  • If you do not have a clear repayment path — LAS is best when you know when and how you will repay

Key Takeaways

  • Loan against securities offers fast, flexible, and low-cost working capital for business owners
  • The overdraft structure lets you draw and repay as needed, paying interest only on what you use
  • Interest rates (9-12%) are significantly lower than typical business loans (14-22%)
  • Your personal investments continue to earn returns while serving as collateral
  • Best suited for short-term, predictable cash flow gaps — not long-term capital needs
  • Maintain a collateral buffer and have a clear repayment plan before borrowing
  • Interest on loans used for business purposes may be tax-deductible

For business owners who have built personal investment portfolios, LAS bridges the gap between personal wealth and business liquidity — without forcing you to choose between the two.