Business loan without collateral securities are an excellent option for every micro, small and medium business owners who are just starting out or for established businesses that want to expand their operations without incurring additional debt. But it is a vital point of concern for all entrepreneurs that how to get business loan without collateral securities and that too with quick approval processes, flexible repayment terms, and an easy online or offline application process.

The biggest concern of any start-up or even for an established entrepreneur that whether collateral securities to be submitted or not in case of business loans. As there are many other things at the stake of the business owners like their residential or commercial or industrial properties, fixed deposits, owned machinery, raw materials, and much more.

Business loan without collateral always helps an entrepreneur to operate and manage business at ease without worrying about asset at stake. The Government of India has taken initiatives to offer credit facilities and promote these Micro, Small and Medium Enterprises (MSMEs) and startups. Therefore, they have introduced various loan schemes for startups, where there is no need of submitting any collateral security.

What is a Business Loan without collateral?

Business loan which are provided by the scheduled banks, NBFCs and fintech companies to the self-employed professionals and self-employed non professionals in form of short-term working capital loans or term loans without mortgaging or hypothecating any fixed immovable or movable assets like residential or commercial or industrial properties, machineries, fixed deposits and other investments, raw materials etc. are termed a business loan without collateral securities.

Startup business loan without collateral or security means that the business owner or entrepreneur shall not have to submit any collateral or security with the Bank or NBFC before availing any loan.

Unsecured business loans offered by financial institutions are termed as collateral-free loans and the maximum loan amount can be availed up to Rs. 2 crores.

 However, if it is a secured business loan then the collateral to be submitted are in various form, such as residential and commercial properties, equipment, machinery, raw materials, goods, inventory, fixed deposit, gold, vehicles, etc.

What are the features of Business Loan without collateral?

A business loan without collateral always gives an extra momentum and desired thrust to every micro, small, and medium enterprises due to some of its unique features which are as follows:

(i) Quick and rapid processing

Business loan without collateral is processed very rapidly and the process of disbursement procedure is also completed to the earliest once it gets sanctioned, as the authorization of the loans are normally granted within three business days of receiving it.

The applicant should have little difficulty obtaining a loan of the required amount as per the profile and credential with no time wasted. The bank or NBFC put every effort to expedite the process with the implementation of due strategies and procedural efforts and guarantee that it is made available within the stipulated time frame.

(ii) Options for Repayment

At present there are currently a variety of repayment alternatives available for business loan without collateral. Lenders are mostly aware of the difficulties inherent in small business operations.

They do, however, have a range of adjustable terms and conditions. They can allow for a variable EMI dependent on the company’s financial position and also allow for bullet payments for recurring payments.

(iii) Credit Rating

Business loan without collateralis an excellent way to improve the credit track records of the business, and the report of the loan activity are reported to all the major credit bureaus like CIBIL, Part of Transunion, Experian, Equifax and Crif-High Mark.

(iv) Minimum Required Documents

One of the primary advantages of availing business loan without collateral is that the application for the loan is accepted with the minimal paperwork. As a consequence, it would not be necessary to provide lengthy documentation to apply for such a business loan as per the lender bank or NBFC where the application been submitted.

Apart from these, since business loan without collateral are also provided to business entities without needing equity, there is no requirement for asset or collateral documentation. In some cases, electronic uploading of business financing paperwork is feasible subject to the policies of the lender bank or NBFC.

What are the benefits of Business Loans without collateral?

India is majorly thriving on micro, small and medium enterprise businesses, as the growth of these entities, in turn, gives a huge boost to the economic growth of the country.

We have already discussed the major benefit of business loan without collateral securities as the borrower need not to pledge any security or guarantee of any sort while applying for the loan.

Entrepreneurs with no assets can also apply for the loan. The benefits of business loan without collateral for micro, small and medium-sized enterprises are as follows:

(i)Competitive and reasonable interest rates:

SMEs and MSMEs not only get collateral-free financing for their businesses but can also avail of such attractive interest rates for business loans. These subsidised interest rates make such loans more popular with industries. A good credit rating and credit track records of the borrower can help to avail the business loan without collateral in further reducing the interest rates on loans.

(ii) Faster approval of loan applications:

Another advantage of a business loan without collateral is that borrowers get the funding quickly and easily. There is no wastage of time in the valuation of assets or transferring security documents into the lender’s name.

The timely processing of applications by the credit rating agencies makes these loans a hassle-free option for the borrowers.

(iii) Term and purposes of loan:

The renowned banks and NBFCs offering business loan without collateral security options, from where the borrowers can choose as per their suitability. They can even invest in government-introduced schemes specially designed for this purpose.

A borrower can avail himself of a long-term loan or a short-term loan. Whether for inventory requirements, expansion of office space, or the purchase of new machinery, collateral-free loans are available to fulfil different purposes.

(iv) Flexible repayment timelines and utilisation:

Apart from competitive and reduced interest rates, borrowers also get a customized, flexible repayment option for up to 60 months. As the revenues of the business grow, the borrower may choose to repay the loan sooner to become debt free.

The term loans containing no limits on the utilisation of funds. One may use the loan amount to acquire new equipment, improve current infrastructure, recruit additional workers, or satisfy other technical needs.

(v) Accessibility to finances on an urgent basis:

In many occasions particularly small businesses face an urgent need to inject cash into their businesses. With an online application that needs minimal documentation, the borrower may expedite the acceptance of the collateral-free business loan.

Online document submission expedites the verification procedure and expedites disbursement.

What are the Eligibility criteria required to avail Business Loan without collateral?

Business loan without collateral security is also regarded as unsecured business loan which are preferably provided to those applicants by the banks or NBFCs who are doing businesses as micro, small and medium enterprises (MSMEs) related to manufacturing and trading or providing services or self-employed professionals like doctors, engineers, chartered accountant, cost accountant etc. if the following parameters are fulfilled:

1. The credit score of the applicant should be 750 or more.

2. The loan applicant must be at least 23 years of age at the time of application and should not be more than 70 years at the time of completion of the loan tenure

3. The credit track records and the credit history of the report should not be showing status such as settled, post written off settlement, willful default or suit file.

4. The business vintage period must be complete 3 years.
5. The business entity must have filed income tax returns as per the norms at least for the last two years.

6. The bank transactions related to business must be reflecting the business transactions.

7. If the goods and service tax is applicable to the related business then the turnover of the business should be at par the returns so filed.

8. The residential address or the business address must be ownership with proper reinforced concrete construction.

What are the documents required to be submitted to get Business Loan without security?

Business loan without collateral can be availed from scheduled banks and NBFCs if the following documents are provided by the loan applicant:

• KYC Documents of the applicant and co-applicant in form of Pan Card, Aadhaar Card and Voters’ ID Card.
• Relationship proof with the co-applicant in form of Passport or driving license or birth certificate or marriage registration certificate etc. if the KYC documents as mentioned above are not fulfilling the requirement.
• Ownership proof of the residential address or business address in form of latest electricity bill and updated property tax receipt.
• In case of companies like partnership firm or limited liability partnership (LLP) or private limited company the documents like company Pan card, Partnership Deed, laws and bye laws of the LLP, MOA and AOA, letter of incorporation, share holding pattern etc. are to be submitted along with the KYC documents of the partners or directors as per applicability.
• Trade licenses for the last three years as business continuity proof and one old trade licence as vintage proof of the business along with the Udyam Aadhaar Registration certificate and professional tax certificate.
• Other licenses like drug license, fire license and pollution certificate, FSSAI etc. are also to be submitted as per the applicability and requirement of the business for which the business loan without security been applied for.
• In case of professionals like doctors or engineers or Chartered Accountant or Cost Accountant etc. the applicant must provide the certificate of qualification with the enrolment certificate so provided by the governing authorities as applicable.
• Income tax acknowledgement copies for the last three years along with profit and loss account, balance sheet, computation, audit report with Form 3CB and Form 3CD are required to be submitted for the calculation of income eligibility for business loan without security.
• GST registration certificate with returns for the last one year must be provided for deducing the trend of the growth in the business while applying for business loan without security.
• The bank statement of all the business accounts must be provided to get the data so provided to ascertain the banking turnover for business loan without security.

What are the Business Loans without collateral one can apply under MSME Schemes?

An entrepreneur can secure an MSME business loan without collateral by applying to financial institutions like banks and NBFCs under the following loans or schemes:

• The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme provides an MSME loan without security up to Rs 10 lakh without the requirement of collateral.
• The Pradhan Mantri MUDRA Yojana offers unsecured business loans to MSMEs, individuals, and professionals up to Rs 10 lakh.
• The Stand-Up India Scheme facilitates bank loans to at least one woman and at least one Scheduled Tribe (ST), or Scheduled Caste (SC) borrower per bank for setting up greenfield enterprises.
• MSME loans in 59 minutes is a scheme where MSMEs can apply for business loan without collateral up to Rs 5 crore through an online portal called PSB Loans in 59 minutes.
•  Non-banking Financial Companies (NBFCs) offer loans for MSMEs without collateral at competitive terms and conditions and perhaps the quickest turnaround time.

Loans under the CGTMSE Scheme

Under the government initiative of the CGTMSE scheme, the borrower can get business loan without collateral term loans and working capital loans up to Rs 10 lakh. There is a guarantee cover of up to 75% of the sanctioned loan amount.

If the borrower is a woman or based in the North-East region of India, the coverage goes up to 80%. The interest rate starts from 7.5%.  The loan can be used to purchase assets such as machinery and equipment. The bank decides the repayment tenure, subject to a maximum term of 10 years.

Micro Units Development and Refinance Agency or Mudra Loans

Micro Units Development and Refinance Agency or MUDRA is a government initiative where the applicant of business loan without collateral can get an MSME loan without security for a small non-farming related business.

The types of business loan without collateral available as working capital loans, term loans, and overdraft facilities. The interest rate will be dependent on the profile and business requirements.

The repayment tenure under the MUDRA scheme ranges from one to five years. Under MUDRA, the MSME loan limit without collateral is categorised under three headings as follows:

• Shishu – loans up to Rs 50,000 ideally for start-ups
• Kishor – loans starting from Rs 50,001 to Rs 5,00,000
• Tarun – loans starting from 5,00,001 to Rs 10,00,000

Stand-Up India Scheme Loans

If the applicant for business loan without collateral is a woman entrepreneur or belong to a Scheduled Caste Scheduled Tribe, then one may be eligible for Stand-Up India loans.

These loans are to be used for setting up greenfield enterprises in manufacturing, services, trading, or agriculture allied activities and sectors. The loan amount available is between Rs 10 lakh and Rs 1 crore. The interest rate is 5.5%, with a repayment tenure of 7 years.

MSME Loans in 59 Minutes

This scheme offers emergency credit to MSMEs, allowing MSMEs to apply for business loan without collateral in minutes under the portal. Collateral-free loans are provided under the CGTMSE scheme. The interest rate offered starts from 8.5%. The in-principal loan amount ranges from Rs 10 lakh to Rs 5 crore. The loan can purchase machinery, infrastructure development, business diversification, and more. The repayment tenure goes from 1 year to 15 years. 

The fintech portal links the applicant with various banks. However, the in-principal amount is subject to approval by the lending bank and is no credit guarantee.

NBFC Loans for MSME without collateral

NBFCs can provide the borrower with an MSME business loan without collateral. These loans can be used to expand technology, manpower, infrastructure, working capital, and more. MSMEs often prefer collateral-free loans from NBFCs as their eligibility requirements are pretty lenient.

Moreover, the documentation required is minimal, and the processing time is quick. An advantage of these loans is that you do not need to register under any scheme to avail of them, so disbursal is fast. NBFCs may also allow the applicant to structure your repayment around your business’s cash flow.

The loan amount varies and may depend on the size and volume of the business. Loan tenures usually range from one year to three years. Interest rates are also competitive. 

How to get Business Loan without collateral?

The applicant for business loan without collateral security must abide by the below mentioned points to get the loan successfully:

• One must make sure that the credit score must keep on improving.
• The lender bank or NBFC should be chosen wisely from whom one wish to avail the business loan without collateral security.
• Do not apply for multiple loans at a time. If the applicant is having existing loans, make sure that the EMIs are cleared within the due date before applying for a business loan without security.
• Application for such a loan amount should be made which the borrower can repay on time.
• An audited record of all the financial statements is to be kept in details.
• Make sure that the check credit score with credit track records is monitored on a regular basis.

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