How Can You Get a Small Business Loan Without Collateral in a Few Simple Steps

Initiating and sustaining a business requires good ideas and sufficient capital. If you are a small business owner, you might have experienced a need for funds at one point or another. You might think of loans, but there are criteria for providing collateral. However, it is not easy for everyone to have one, reducing the chances of getting a secured loan.

But there is hope. Today, entrepreneurs can get collateral-free business loans easily. With the government coming up with schemes and banks and NBFCs supporting them, you can avail of small business loans at reasonable interest rates. Let us know how.

Collateral-free Loans: Features and Benefits

As the loan is collateral-free, it differs slightly from any traditional loan. You must also be aware of collateral-free loans’ features and related benefits.

1. Collateral-free: You don’t have to submit any assets to avail of the loan amount.
2. Documents: All you need is business proof, identity proof, and a simple KYC (know your customer) process.
3. Fast processing: As you don’t need to provide any collateral, the amount is processed almost instantly.
4. Flexible interest rates: You get a competitive interest rate and thus have less burden than traditional loans.
5. Easy repayments: You have the option to repay at your financial convenience.

Now that you know about the features of collateral-free business loans, it is time to explore some government schemes under which you can get small business loans.

Government Schemes

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

The Indian government launched a credit guarantee trust (CGT) in collaboration with SIDBI (the Small Industries Development Bank of India). You can get a loan from any private or government bank in India. For more information, go to www.cgtmse.in.

Pradhan Mantri Mudra Yojana (PMMY)

Under the Mudra Yojana, you can get the following types of loans:

Loan Type	Amount	Interest Rate
SHISHU	Up to 50,000 INR	12% @ five years of repayment
KISHOR	50,000 to 5 lakhs	Depending on the lender
TARUN	5 lakhs to 10 lakhs	Depending on the lender

To know more about the scheme, visit this website: mudra.org.

How to Apply for Collateral-free Loans?

You can obtain more information about collateral-free loans by visiting the lender’s official website or visiting your nearest physical branch. In both places, you will find an application form that you can fill out to apply for the loan. Several lenders also have customer service executives who can guide you through the entire process.

Now, let us know the eligibility criteria.

Eligibility for a Collateral-free Business Loan

To avail of a collateral-free loan, you need to meet the following criteria:

1. You need to be an Indian citizen between 23 and 65 years old.
2. You must be self-employed and have your own business.
3. A good credit score (usually more than 700) increases the chance of getting approved. Visit the website of CIBIL to know more.
4. Lastly, you must have a business history of around three years. 

You also need to know how to improve your chances of becoming eligible.

Things to Consider While Applying for a Collateral-free Business Loan

There are options for you to get collateral-free loans. However, in some cases, there are chances that you may get rejected. Therefore, you can follow some steps to improve your chances of getting a loan.

1. Explore your requirements: You must know why you are taking the loan and how much is sufficient for your business. Justification in front of lenders is necessary to improve your chances. Furthermore, your reasoning must be clear in your mind.
2. Improve your credit score: If your credit score is below 700, you might have difficulty getting a loan. Therefore, you must try to bring it up to $700–750 to get eligible and negotiate lower interest rates.
3. Clear any pending loans: There are chances of not being eligible for a collateral-free loan if you have multiple pending loans. You should clear these debts before applying for a fresh loan, which can increase your chances.
4. Come up with a robust business plan. Before applying for a collateral-free business loan, a strong foundation and business plan must present in front of the lenders. Trust and confidence are two factors that will help you move forward with your plan. 

After ensuring your eligibility, the bank can ask you to present some documents for KYC. Let us delve into the details.

Documents Required for a Collateral-free Loan

1. Bank Statements: You must have a bank account with financial activity for the past six months. Some lenders may ask for a bank statement before disbursing loan amounts.
2. Business proof: Registration proof, such as the GST number and address of the business, is also required. Also, you can expect the lenders to ask you about your business details.
3. Identity Proof and Address Proof: You can present either your Aadhaar card or driving licence for your identity and address proof. Passports are also valid.
4. PAN Card: You must have your Permanent Account Number (PAN) for KYC.
5. Two recent passport-size photos

Final Takeaway

After reading the above information, you might be well-versed in all the information related to collateral-free business loans. As a business owner, no matter how small or large, you can easily get loans from banks and other financial institutions.

However, if you are looking for easy disbursement of collateral-free loans, you must consider Piramal Finance. They have simplified the online loan system for your business needs. In addition, you can also get an expert consultation about your requirements and other business loan-related information.