💼 How SMEs Can Leverage LAS & Unlisted Shares for Working Capital

Summary: India’s SMEs face a ₹30 lakh crore working-capital shortfall, yet only 18% use digital lending platforms. This in-depth guide explains how SMEs can unlock liquidity by pledging both listed and unlisted shares through InvestoEdge’s Loan Against Securities (LAS) service, supported by AI-driven pricing and swift, compliant execution.

1. SME Working-Capital Challenges

SMEs account for 90% of credit demand in India but face a significant financing gap—estimated at ₹30 lakh crore (24% of demand).¹ Women-owned and service-sector SMEs see even higher shortfalls (35% and 27% respectively).²

Only 18% of MSMEs use digital lending, despite 90% accepting online payments, highlighting under-adoption of fintech solutions.³ Traditional term loans often involve lengthy documentation and collateral requirements, delaying funding by weeks.⁴

2. LAS vs. Traditional Loans

Term Loans: Require extensive financials, tangible collateral (property), 2–4 week approval, and interest of 12–18% p.a.⁵

Overdrafts/OD: Flexible but often capped at 60% of sanctioned limits, with floating rates of 11–15%⁶ and annual renewal hassles.

LAS: Pledge listed equity or mutual funds up to 75% LTV on debt funds and 50% on equities, with rates starting 11% p.a., funded in 3 hours, and minimal paperwork.⁷

3. Pledging Listed & Unlisted Shares

SMEs often hold stakes in private affiliates or ESOPs. InvestoEdge allows pledging:

Listed Shares: Blue-chips, mid-caps, ETFs. 50% LTV.
Mutual Funds: Debt & hybrid funds, 75% LTV.
Unlisted Shares & ESOPs: InvestoEdge’s Unlisted Marketplace accepts select pre-IPO and employee shares at 40% LTV, factoring illiquidity via AI discounts.⁸

This dual-collateral model provides higher ticket sizes and diversification of pledged assets.

4. InvestoEdge LAS Workflow

Quote & Application: Fill an online form—select collateral, desired amount. Instant LTV & rate quote.⁹
e-KYC & Documentation: PAN, Aadhaar, demat proof. 100% digital in 15 minutes.¹⁰
Digital Mandate & Escrow: Authorize auto-debit for interest & principal.¹¹
Pledge Creation: Shares/units pledged in demat with a lien marking.¹²
Disbursal: Funds credited in under 3 hours to SME account.¹³
Repayment & Release: Closure via online payment; collateral released same day.

5. AI-Driven Illiquidity Adjustments

Static haircuts (20–30%) on unlisted assets often misprice risk. InvestoEdge’s AI engine:

Aggregates pre-IPO and ESOP grey-market trades. ¹⁴
Applies dynamic illiquidity discount based on time-to-liquidate. ¹⁵
Cross-validates with DCF forecasts for sanity checks. ¹⁶

This ensures SMEs pledge at fair-value, reducing margin calls and rate shocks.

6. Case Study: SME Funds Expansion

A Pune-based packaging SME needed ₹50 lakh for raw-material bulk purchase ahead of festive season. They:

Pledged ₹30 lakh in debt MFs (75% LTV) & ₹20 lakh in ESOPs (40% LTV).
Chose 11% LAS for 6 months.
Obtained funds in 2 hours; ramped up production by 40%.¹⁷
Repaid LAS on proceeds from increased sales; net interest cost = 3.5%.¹⁸

7. Cost Comparison: LAS vs. NBFC Overdraft

Product	Rate (p.a.)	LTV	Tenor	Disbursal Time
InvestoEdge LAS	11%	Up to 75% (debt), 50% (equity)	1–12 months	~3 hours
NBFC OD	14–16%	Up to 60%	12 months	2–5 days
Bank Term Loan	12–18%	Varies (secured)	1–5 years	2–4 weeks

8. Risk Management & Covenants

Margin Call Alerts: Automated SMS/email when LTV breaches 85%.
Stop-Loss Limits: Option to liquidate portion of collateral at pre-set thresholds. ¹⁹
Covenant Light: No periodic financial covenants—only LTV maintenance.
Insurance: Collateral insurance available for unlisted holdings. ²⁰

9. Frequently Asked Questions

Q1: Can I pledge unlisted shares I hold outside InvestoEdge?

Yes—transfer them to your demat and add to InvestoEdge’s Unlisted Marketplace before pledge.

Q2: Is LAS interest tax-deductible?

Interest on LAS for business purposes is deductible under Section 36(1)(iii) of the IT Act.

Q3: What if collateral value falls sharply?

You’ll receive a margin-call notice; you can top up collateral or prepay part of the loan to restore LTV.

💼 How SMEs Can Leverage LAS & Unlisted Shares for Working Capital

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