What is Collateral-Free Business Loan?

Collateral is a tangible asset or property that is kept as a security against the loan amount. In collateral-free business loans, banks sanction the business loan amount without keeping an asset or property as a security or guarantee against the loan.

What are the documents I require to avail of a collateral-free loan?

The documents that you need to submit to avail of a collateral-free loan include passport-size photographs, and identity proof like an Aadhar card, PAN card, etc. You also need to provide business ownership proof documents and other documents specifically requested by the lending institution.

Collateral-Free Business Loan

Looking for a loan for business without security? Get collateral-free financing of up to ₹50 Lakhs on flexible repayment terms.

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A collateral-free business loan enables you to access working capital for your business. This includes buying new machinery, sourcing talent, or expanding your business operations without providing any asset as a security for the credit.

Read on to know about collateral-free business loans for startups, their features and benefits, and how to get a loan for starting a new business without security.

Who Needs a Collateral-Free Loan?

Large businesses and industries require significant capital investments that can total tens, hundreds, or even thousands of crores. Hence, they may not need loans without collateral as the maximum offered is quite limited.

Employees and proprietors of MSME businesses typically need collateral-free financing (micro, small and medium enterprises). MSMEs have a major impact on the expansion of the Indian economy. As such, lenders offer a wide variety of loan options, which include:

Employee personal loans
Loan Refinancing
Costs for children's education
Loans to renovate a home or a company
Capital for small and medium-sized businesses or loans used as a down payment on personal loans such as those for a house, a car, or other purchases
Emergency loans for medical costs paid out of pocket are more than the insurance coverage

Features and Benefits of Collateral-Free Loan

Collateral-Free

You need not offer any asset, like real estate or machinery, as a security to acquire funding.

Minimal Documentation

You can get a loan for business without security with basic KYC documents and business proof.

Instant Processing

A loan for business without security is processed quickly as there is no collateral to verify.

High Value Loans

You can get up to ₹50 Lakhs or more as a loan for starting new business without security.

Competitive and Flexible Interest Rates

Lenders offer collateral-free loans for startups and businesses at competitive rates.

This helps reduce overall interest, enabling you to achieve business goals affordably.

Flexible Repayment Options

Lenders offer collateral-free loans for MSMEs with repayment flexibility.

This helps you to repay on time and as per your cash flow, without any financial strain.

Online Account Management

Most lenders offer online loan management services, making repayment easy and efficient.

Eligibility Criteria for Collateral-Free Loans

Here are the eligibility criteria to avail of a collateral-free business loan for MSMEs and other businesses.

Citizenship: Indian citizenship is compulsory to be eligible for a collateral-free business loan
Employment: Individuals applying for a business loan must be self-employed
Credit Score: The credit score requirements vary with the lender, but a credit score of 750 or more is considered decent
Age Limit: Most lenders only give loans to people within 24-70 years of age
Business History: Some lenders require the business to have a minimum history of 3 years

Documents Required to Avail Collateral-Free Loan

Here are the documents that you need to submit to avail of collateral-free loans for startups and other businesses.

Identity Proof and Address Proof: It is mandatory to submit your Aadhaar card/passport/driving licence as proof of your identity and address
PAN Card: All lenders require your Permanent Account Number (PAN) to verify your financial identity
Business Registration Proof: Lenders would also require proof of business registration
Bank Statements: Some lenders may assess your financial stability by checking your bank statements for the past 6 months

With minimum paperwork, applying and getting approval is easy. Apply Now on Bajaj Markets.

How to Apply for Collateral-Free Business Loans?

Below we have provided simple steps to apply for a business loan without collateral.

Step 1

Visit the official website of Bajaj Markets and log in or register using your mobile number and OTP.
Step 2

Click on the ‘Business Loan’ tab listed on the home page and click on ‘Apply Now’.
Step 3

Select the appropriate option from the list of preferred loan partners.
Step 4

Choose the required loan amount and repayment tenure.
Step 5

The lender will verify and approve the loan and post approval, the amount will get disbursed into your account.

Government Initiated Loan Schemes for Startups in India – October 2023

The government of India has initiated certain loan schemes to encourage Startups in India in October 2023.

1. MUDRA Loan

The Micro Units Development and Refinance Agency (MUDRA) is a loan scheme launched to ‘Fund the Unfunded’ without any collateral or guarantee. The loan scheme offers financial assistance to small and micro-level businesses at reasonable interest rates.

Startups and small businesses are categorised into three categories by the MUDRA loan scheme:

Shishu: Mudra offers ₹50,000 financial assistance to the initial stage of the Startups and businesses under this category
Kishore: This category is defined by evaluating various factors like growth, turnover, and scope of the business, and the beneficiary is offered fund assistance of ₹50,000 to ₹5 lakhs
Tarun: Financial assistance above ₹5 Lakhs and up to ₹10 Lakhs is offered under this category after evaluating the requirement of the businesses

2. Stand-Up India Loan

To encourage and empower women entrepreneurs of the Scheduled Tribes and Castes, the government is offering ₹10 Lakhs-₹1 Crore loans to the women for setting up their startups or businesses in trading, manufacturing, or any other industry. The Stand-Up India loan scheme is available for a tenure of 7 years with flexible repayment options.

3. CGTMSE Loan

The government of India has launched the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) loan scheme in collaboration with public banks, foreign banks, certain rural regional banks, etc. to render financial assistance of up to ₹5 Crores to Startups as well as existing businesses.

To avail of the benefit of this collateral-free loan scheme, a business unit has to fulfil certain eligibility parameters and prove its viability.

4. Credit Facilitation

NSIC (National Small Industries Corporation) offers credit facilities from banks to registered Micro, Small and Medium enterprises by analysing their turnover and profit ratio. This scheme is generally offered for a tenure of 5-7 years. In exceptional cases, it can be extended up to 11 years.

5. Market Development Assistance Loan Scheme

This scheme is launched to promote Micro, Small and Medium enterprises (MSMEs) for international exposure in trade fairs, exhibitions, etc. The scheme offers funding for:

SMEs’ participation in international trade fairs and exhibitions of manufacturing industries
75% reimbursement of the registration fee
SMEs are given 75% reimbursement of the annual fee paid to the GSI for the first three years
Participating in anti-dumping cases

Credit Profile Needed for a Collateral-Free Loan

Your credit history is among the most important eligibility criteria for collateral-free business loans. Credit profiles come in two different varieties. The two categories are bad credit profiles and excellent credit profiles.

Your credibility will get negatively affected if you don't pay on time. You are viewed as a credible applicant if you pay back your debts on schedule.

Your credit score is a marker of this credibility, as it shows whether a person has a good or bad credit profile to the authorised lenders the RBI regulates. Based on your score, your loan terms are decided. Therefore, if you seek a loan without collateral, you need to establish your credibility with the lender.

Here are a few points that you must remember.

You should have a credit score of at least 700
You must have relevant experience in business to pay back the loan
You also required to disclose the loan's objective
You need to provide proof with the application to purchase any machinery or equipment

Collateral-free loans are another name for the MSME small loans provided to those pursuing self-employment prospects. It is done solely to encourage more people to launch new firms, boost general productivity, and raise the nation's per capita income.

Therefore, it is a fantastic initiative for the whole nation and the debtors.

Things to do to Increase Your Chances of Loan Approval

Here are a few things you can do to increase your chances of loan approval:

Review and strengthen your credit history
Make a strong business plan
Review the internet presence of your business
Discuss with your lender how you plan to use the funds
Select the appropriate product and a reputable lender

As you can see, getting a collateral-free loan for MSMEs and other firms can greatly facilitate seamless operations. It also aids management while safeguarding your assets.

To get started, visit Bajaj Markets and conveniently access various financing options to avail the best one for you!

Collateral is a tangible asset or property that is kept as a security against the loan amount. When you take a loan for starting new business without security or collateral, lenders sanction the loan amount without an asset as a guarantee.

To get a collateral-free business loan, one can become the beneficiary of government-initiated business loan schemes. One has to fulfil eligibility parameters and prove the viability of the business.

The documents that you need to submit to avail of a collateral-free loan for MSMEs include passport-size photographs, and identity proof. This includes the owner’s Aadhaar card, PAN card, etc. You also need to provide business ownership proof documents and other documents specifically requested by the lending institution.

The banks or lending institutions generally aim to sanction the requested loan amount to the lender. However, any error or discrepancy in the information provided by the error might reduce the sanctioned loan amount.

Major Indian banks offer collateral-free loans, such as Bank of Baroda, Axis Bank, UCO Bank, Fullerton India, State Bank of India, HDFC Bank, and State Bank of Hyderabad, among others.

MSME loans for new businesses are usually unsecured loans, which means the borrower is not required to provide the bank with any security or collateral. You can use MSME business loans to expand your business and meet the operating financial demands.