New enterprises generally seek unsecured business loans as they might not have the ability to provide collateral to the lender. The process of applying for these business loans has been digitised and business owners can apply for them online. Many lenders also offer the business owners the facility of repayment through manageable instalments.
What is a Collateral-Free Business loan?
A collateral-free business loan refers to an unsecured loan which can be availed without the need to pledge any collateral or asset, such as land, property or any other major asset as a mortgage until the loan is repaid. For new and emerging small businesses, collateral-free loans offer a way to get funds for growing their business without risking their assets.
Getting a small business loan without collateral has become quite easy these days as you can apply for loans and get quick approval through digital lending platforms like Moneycontrol. You can apply for loans up to Rs 15 lakhs with offers from up to five lenders and use the money for your business.
Who gives collateral-free business loans in India?
Both banks and NBFCs provide collateral free loans in India. The Indian government has also launched a few schemes for small businesses which offer collateral free loans. These include the MUDRA loans under the Pradhan Mantri Mudra Yojana scheme for startups and small businesses. Loans of up to ₹20 lakh can be availed by new businesses under this scheme. Additionally initiatives such as the Stand-Up India Scheme aim to empower SC/ST and women entrepreneurs of the country. The entrepreneurs are provided loans between ₹10 lakh – ₹1 crore for a tenure of up to seven years. Another such scheme is the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) under which borrowers can avail a loan of up to ₹1 crore without collateral.
Eligibility Criteria for Applying For Business Loans Without Collateral
The eligibility criteria for business loans without collateral could vary from lender to lender. However, there are some common eligibility criteria for availing such loans.
Business Experience
Businesses which apply for a collateral free loan should have a minimum business experience of three years in the same field. Additionally, borrowers also set a turnover goal which the business should have met in the three year period. Generally lenders consider those businesses eligible for collateral free loans which have a turnover of at least ₹40 lakh in this time period.
Profit Accretive Business
Lenders consider only those businesses eligible for no-collateral loans which have been profitable for at least 1 year. This ensures the business owner’s stable income and the ability to repay the amount borrowed.
Business Structure
Only businesses which are registered as Sole Proprietors, Partnership Firms, Private Limited Companies, Trusts, and Limited Liability Partnerships (LLPs) engaged in manufacturing, trading, or providing services are eligible for collateral free business loans.
Age Requirement
The age requirement for applying for collateral free business loans differs from lender to lender. However the primary applicant should ideally be between 25 and 65 years of age at the time of loan maturity.
Required Documents for Collateral-Free Business Loans
The documents required for applying for a collateral free business loan are usually the same across all lenders. However some lenders may ask for documents which are not mentioned in the list below depending on their criteria for disbursing business loans.
- Identity Proof such as PAN Card/Driving License/Passport/Voter's ID/Aadhaar Card
- Address Proof such as Passport/Driving License/Voter ID/Aadhaar Card/Utility Bill/Bank
- Income Proof: Statement/Bank Account Passbook (Updated and not more than 3 months old)
- Proof of ownership such as Agreement Copy/Electricity Bill/Maintenance Bill with share certificate/Municipal tax bill/Share certificate
- Business Continuity Proof such as Shop and Establishment Certificate/Tax registrations-VAT/Service tax/GST registrations and payments
- Firm Constitution such as MOA/Partnership Deed/GST Registration Certificate
- Financial: Latest 2 years' financials and the Latest Tax Audit Report
- Banking: Last 6 months' bank statement (Business Accounts)
Steps To Apply For a Collateral-Free Business Loan
- Go to the official website of the lender or a trusted online loan platform like Moneycontrol
- Log in to the website or register using your mobile number and OTP.
- Navigate to the 'Business Loan' section
- Fill out the application form with the required fields.
- Review the form for errors and click submit
- The lender will review and approve your application
- Borrowers must note that the loan amount is disbursed only upon approval.
Benefits of Collateral-Free Business Loans
No Need To Pledge AssetsBy availing a collateral free business loan, businesses can do away with the need to pledge assets of the business such as real estate or machinery to the lender. This in turn offers peace of mind to the borrower.
Minimal Documentation
Collateral free loans require relatively less documentation and the application process becomes smoother as only KYC documents and business-related documents are required by the lender.
Faster Processing
A fast disbursal can help businesses in capturing time-sensitive business opportunities.
Attractive Interest Rates
Collateral-free business loans often come with attractive interest rates which can decrease the overall interest expense of the business and bolster financial health.
ALSO READ: How to Secure the Best Business Loan Interest Rate
Conclusion
Gaining access to funds is crucial for every new and emerging business. The availability of such loans online helps in realising your business plans quickly. The convenience and speed of unsecured business loan approval through platforms like Moneycontrol helps in easing the process, making it convenient to secure loans up to Rs 15 lakhs in a 100% digital process.
Disclaimer
This piece/article was written by an external partner and does not reflect the work of Moneycontrol's editorial team. It may include references to products and services offered by Moneycontrol.Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
