Collateral Free Loans in India

A collateral-free business loan helps provide the working capital that can be used for purchasing machinery, hiring staff, or expanding your business without pledging any asset as a security against the credit. However, due to the implied lack of penalty for default, it must be noted that a loan defaulter would still face legal actions from the lender and also be subjected to a drop in their credit rating. This is true for those who take such loans without applying for government schemes and, thus, have no guarantor in case of default.

Who Needs a Collateral Free Loan?

Large businesses and industries require significant capital investments that can total to tens, hundreds, or even thousands of Crores, hence they are not eligible for loans without collateral. Employees and proprietors of MSME businesses typically need collateral-free financing (micro, small and medium enterprises). Small-town residents really favour MSMEs, and it's interesting to remember that there are already over 600 Crore MSMEs operating in India. MSMEs have a major impact on the expansion of the Indian economy. Here are some examples:

• Employee personal loans.

• 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.

• Medical costs paid out of pocket are more than the insurance coverage.

• Costs for children's education.

• Loans to renovate a home or a company.

• Loan refinancing.

• Any unforeseen expenses that arise during the year that are not planned for in the budget.

Features and Benefits of Collateral-Free Loan

• Collateral-Free: Unlike traditional business loans, it is no longer mandatory to pledge any asset such as real estate or machinery as a security to avail credit facilities.

• Minimal Documentation: Collateral-free loans can be availed online with minimal documentation. The documents required would pertain to KYC, identity, address and business proofs.

• Instant Processing: The absence of the collateral requirement has led to quicker and simpler loan processing. For example, suppose you opt for the collateral-free business loan available on Bajaj Markets, then your application would ideally be processed within 2 minutes, and your loan amount will be disbursed within 24 hours, subject to approval!

• High Value Loans: With collateral-free business loans, one can avail of a loan of upto ₹50 Lakhs or more depending on the nature of the business.

• Competitive and Flexible Interest Rates: Compared to other premium loan services, collateral-free business loans are offered at competitive rates, thus allowing borrowers to achieve their financial and commercial goals without the burden of high interest.

• Flexible Repayment Options: Various lenders have different schemes and offers when it comes to loan repayment. The flexible repayment options let you make your repayments as per your financial standing. Depending upon your income, you can choose to make smaller or bigger payments towards fulfilling your loan.

• Online Account Management: Most lenders now offer loan management services through a dedicated online portal, which greatly eases the administrative and management process.

Eligibility Criteria for Collateral-Free Loans

• Citizenship Criteria: 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 at which your loan would get approved varies with the lender, amount, and tenor. However, a credit score of 700 or more is considered to be decent.

• Age Limit: Most lenders only give loans to people falling within a specific age bracket. It is usually between 25-66 years of age.

• Business History: Some lenders require the business to have a minimum functioning history of around 3 years.

Collateral-Free Business Loans Interest Rates and Charges

How to Apply for Collateral-Free Business Loans?

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

• Step 1 - Click on the ‘Business Loan’ tab listed on the home page.

• Step 2 - Select the appropriate option from the list of preferred loan partners.

• Step 3 - Choose the required loan amount and repayment tenor.

• Step 4 - Next, upload copies of all the relevant documents.

• Step 5 - Finally, you must submit your application. The lender will verify and approve your loan that is disbursed into your account.

Documents Required to Avail Collateral Free Loan

• 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 the 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 of the past 6 months.

So, what are you waiting for? Apply Now on Bajaj Markets

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 with the aim 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. The Startups and small businesses are categorised into three categories by the MUDRA loan scheme -

• Shishu - Mudra offers Rs. 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 Rs. 50,000 to Rs. 5 lakhs

• Tarun - A financial assistance of up to Rs. 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 Rs. 10 Lakhs - Rs. 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 Rs. 1 Cr. 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 for 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 points will fall if you don't make your payments on time. You will earn more credibility points if you pay back your debts on schedule.

Credibility points show whether a specific person has a good or bad credit profile to the authorised lenders who are regulated by the RBI. Your loan sanctions would be carried out according to priority based on your points. Therefore, if you are seeking a loan without collateral, you need to obviously establish your credibility with the lender by having a credit score of at least 700.

• You should have a credit score of at least 700. Your experience must be applicable to the business you are now operating or the business you plan to rely on to pay back the loan. The majority of the time, the entrepreneurs are also required to disclose the loan's objective. The required proof must be supplied with the application if it is intended for the purchase of any particular machinery or equipment. This is how you quickly complete the approval.

• 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 as well as 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.