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MSMEs that meet the following criteria are eligible for ‘Collateral Free Business Loan’
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Seeking a loan for personal as well as business purposes has been a practice since ancient times. The term “collateral” is used to define an asset or a valuable item deposited against a loan as a guarantee. When the loan is repaid, the collateral is returned, and in case the borrower fails to pay back the loan, the lender retains the collateral. For the small and medium enterprises (SMEs), the inability to deposit collateral has always been a blockage for securing loans to develop the business. Since the traditional financial institutions have a strict eligibility criterion, even a business that has a valid past and follows the tax and policy guidelines can find it hard to secure a collateral-free business loan.
Loans can be required for various purposes which include expansion, launching new products, hiring new staff and for other reasons. In most cases, the first-generation entrepreneurs involved with micro, small, and medium enterprises (MSMEs), are the ones who seek collateral-free loans. While this sector is one of the significant output generators in the manufacturing industry, the non-availability of timely and adequate credit at reasonable interest rates is a problem they have to face. In case a loan is not supported by any security and is provided by judging the creditworthiness of the loan seeker, it is termed as a collateral-free loan.
Collateral free loans are not only required by entrepreneurs but are also needed by individuals for various purposes. These include personal expenses, higher studies, weddings, and medical expenditure. At present, there are quite a few online financial platforms that provide collateral-free loans for any MSME and also to individuals. Besides, there are also a few government-backed schemes that offer collateral-free loans at affordable interest rates. While the procedure is transparent and straightforward, there is a fixed set of eligibility criteria that the loan seeker is required to meet.
In general, the following two factors are taken into consideration while providing a collateral-free loan.
A good credit score of the loan seeker is the most crucial aspect of securing a loan of this nature. Without a good score, no bank will consider the request of providing a loan to the seeker. Any glitch on the loan seeker’s financial history, including factors like bounced cheques and payment delays, will adversely affect the credit score. On the other hand, a person with an excellent repayment history of loans and credit card bills will be given preference when it comes to sanctioning of a loan. This is one factor that needs to be kept in mind before applying for a collateral-free loan.
When providing loans to non-existing customers, the banks take a close look at the bank balance of the individual. They can ask for the record of the past year’s bank balance to assess the repayment capacity of the loan seeker. Also, the stability of the individual’s income is also taken into account, and for salaried individuals, the salary statement is asked for. For businesses, the income-tax returns along with the balance sheet and P/L accounts are demanded. Any collateral-free loans for MSME are provided after scrutiny of these aspects of the seeker. Apart from these, the lender will also need to submit the necessary KYC info, proof of business registration, identification documents and PAN card details to the financial institute.
The growing entrepreneurial space in India does not include many women, and at present, only around 14 per cent of the total entrepreneurs in the country are women. But there are quite a few schemes from various financial institutes to boost the number of such entrepreneurs. These include schemes from some nationalised banks and also from the Pradhan Mantri Mudra Yojana project. Most of these SME-based collateral-free loans include small enterprises like farming, handicrafts, food-processing, garment making, beauty and others. The loan amounts can vary between INR 50000 to INR 1 crore. In many of the schemes, the women entrepreneurs are also offered a concession in the interest rates.
Apart from the banks and Government schemes, you can avail business loan from NBFC or a non-financial banking company. These bodies are regulated by the Reserve Bank of India and are registered under the Companies Act of India. Unlike banks, such an institute cannot issue self-drawn cheques, demand drafts or receive savings deposits. The NBFCs provide loans in a business-friendly environment and eliminate the various bottlenecks that often result in delays in loan processing. There are also Micro Financial Institutions or MFIs that operate mostly in rural areas to provide collateral-free loans to the weaker section of the society. The MFIs only offer smaller amounts of loans, bordering around INR 20000.
Before applying for a business loan, the seeker can check their credit rating to get an idea about the eligibility. The first loan processing institutes in India are still not making the best use of the available technology to streamline the entire process. This often makes it difficult for a business that requires urgent financial support in a challenging environment. Indifi can provide collateral-free loans to an MSMEs smoothly and efficiently that needs less time and effort.
When asked, most small businesses in India shared that access to collateral free is the biggest roadblock to growth plans. Indifi ensures that the right loan is available at the time of need. By matching the profiles with multiple lenders including banks and NBFC improve the chances of getting a loan. With us, hiring new employees, purchasing more inventory, taking more orders, upgrading equipment and boosting their marketing efforts is possible like never before.
Applying is quick and easy and typically takes less than 10 minutes. We ask for basic information about you and your business. Securely connect your bank information so we can assess your business without long forms, waiting in line or having to dig up old paperwork. Your association with business services who we have partnered with helps get you more fitting loans.
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