Most Indian MSMEs struggle with one thing more than sales, production, or marketing:
Business stability.
Cash flow is unpredictable. Payments get delayed.
Working capital dries up without warning.
So when a banker suggests Loan Against Shares, it feels like a blessing.
Fast approval.
Lower interest rates.
No need to sell your investments.
But what most MSME owners don’t realise is this:
Loan Against Shares works beautifully during a rising market…
but becomes risky during high volatility or sudden stock market crashes.
And in India, stock market volatility has become the new normal — geopolitical news, global cues, FIIs selling, quarterly results — even a single negative rumour can shake the market.
This article explains exactly how volatility impacts your Loan Against Shares, what MSMEs should be careful about, and how to use this financial tool without destroying your stability.
you may also like to read: Falling Gold Prices Shake MSME Finances: What Gold-Loan Borrowers Must Know
A Loan Against Shares allows you to pledge your equity shares, mutual funds, or ETFs and get funds from the bank without selling your investments.
But the value of your loan depends on the value of your shares, which changes every second in a volatile market.
This is where the real risk lies.
related post: OD Against Shares for MSMEs: The Smartest Way to Unlock Working Capital Without Selling Your Stocks
When the market is stable or rising, a loan against shares feels perfect.
But when the market falls sharply, everything changes overnight.
Let’s say:
Now your pledged security is no longer enough.
This is where the danger begins.
When share prices fall, the bank demands you to:
This is called a margin call.
For MSMEs struggling with daily cash flow, margin calls can be financially shocking.
Related post: The Hidden Risk in Gold Loans: What Margin Calls Mean for Small Business Borrowers
This can destroy your financial stability in 24 hours.
Think of March 2020.
Think of Adani stock crash in 2023.
Think of any global overnight crash.
If you had pledged shares and taken a Loan Against Equity Shares, your shares would have dropped 20–40% in days.
Banks would start sending emails and messages:
“Dear Customer, please provide additional margin today to maintain LTV.”
Most MSMEs don’t have spare money ready during a crisis.
This is how MSME owners lose years of investment in forced selling.
Yes, Loan Against Shares interest rates (9%–13%) are lower than unsecured loans.
But interest rate is not the biggest problem.
The real risk is this:
Loan Against Shares + Market Crash = Forced liquidation + Financial instability
Low interest is useless if your shares get sold at a loss.
Avoid:
Pledge only:
Stable shares = lower risk of margin calls.
If banks offer 60–70% LTV, take only 30–40%.
This gives you a safety buffer during market drops.
For working capital, GST payments, raw material, or month-end cash crunch — okay.
For long-term loans, expansion, machinery, or repayment over years — very risky.
MSMEs should treat LAS as a temporary liquidity tool, not a long-term loan.
If you take a Loan Against Shares, always keep an emergency fund that can handle:
Even ₹50k–₹2 lakh kept aside can save you from forced selling.
If the market suddenly shows signs of:
Immediately reduce your LAS exposure.
Avoid taking new loans during these periods.
Ask your bank/NBFC to set SMS or email alerts when your LTV changes.
This gives you early warning before the situation becomes critical.
If markets start dropping:
Many MSMEs ignore small corrections…
Then suddenly receive a huge margin call.
Even with volatility risks, LAS is still useful, especially for:
The key is to use only part of your share portfolio, not 100% of it.
Loan Against Shares is not bad.
It is not dangerous by itself.
The danger comes when MSMEs use it blindly during volatile markets.
If you take LAS with stability, planning, and buffer handling, it becomes:
But if you take LAS during hype, euphoria, or market topping, it becomes:
Use it wisely.
Use it with buffers.
Use it with a clear exit plan.
Your business stability matters more than temporary liquidity.
Better to avoid. Risk of margin calls increases.
Blue-chips, ETFs, large-cap mutual funds.
Bank may demand more margin or sell your shares.
Yes, usually 9%–13%, but interest rates don’t protect you from volatility risk.
No. Best suited for short-term MSME needs.
I’m Tabrez Khan,entrepreneur ,expoter and founder of BusinessZindagi.com, sharing real-world MSME experiences, export learnings, and financial wisdom for small entrepreneurs across India.
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