How to avail of a collateral-free business loan in India?

When you require a business loan, you can opt for many options. Some of the available loan types are term loans, bridge loans, working capital limits, and several others. Although there are several ways in which you can obtain a business loan in India, you must be if you are ready to provide the collateral or not.

As per the rules of prominent lenders, business loans above a certain value need a provision of collateral. The reason is the reduced risk for the lenders. If the borrower fails to pay back the loan amount on time, the lender can use the collateral to recover the debt. Therefore, the borrower will lose hold of the asset given as collateral. A collateral need not just a house or a car, some lenders also accept bonds, equity shares, gold, and other assets as collateral.

Owing to these reasons, collateral-free business loans are gaining popularity. Herein, you can avail of a business loan without any need to provide security. Read on to learn more about these loans and how you can benefit from it.

Can I get a business loan without collateral in India?

Yes, you can get a collateral-free business loan. Such debts are also known as unsecured loans. It means you are not giving any security to the lender; hence, there is no chance of losing your assets. However, certain rules should be taken into account when availing of a collateral-free business loan in India.

Things to remember about an unsecured business loan in India

You should know that when you apply for a collateral-free business loan, you may be unable to get the exact amount. Since there will be no security, most creditors limit the maximum amount for such loans.

The interest rate on collateral-free loans will be high compared to a secured loan. This is because the lender will adjust the interest as per the risk involved.

Collateral-free business loans for MSMEs are quite risky. Hence, lenders require a lot of papers to process this loan. You will have to submit proof of your income in the form of IT returns, bank statements, Form 16 etc. You must have a credit score of above 700 to avail of this loan. If you cannot submit the required papers, the chances of loan rejection are higher.

You have to remember that business loans with collateral are not flexible in nature. If you fail to pay one EMI, you will be charged late payment interest on top of the usual loan interest. Similarly, you might not be able to negotiate regarding any changes to the repayment term.

Collateral-free loans also come with various charges that will increase your financial burden. For instance, you might get charged for loan prepayment, foreclosure, settlement, etc. Therefore, learning about the charges beforehand will help you decide if you want to go with an unsecured loan.

How to avail and unsecured loans in India for your business?

Before making any decision, you should know the process of availing of a collateral-free loan. If you are unaware of the same, you might get into trouble later.

To help you with the process, here are details of the entire process, from loan application to approval and payment: –

First, you need to find the best lender you want to collaborate with to take the loan. The lender needs to be trustworthy and licensed. Check the reviews and feedback from past clients or the portfolio to understand what clients the creditor dealt with. It would be best if you also consider the reputation of the lender. It would be best to go with PSUs because they are directly under the supervision of the government and offer minimal risk-associated loans.

You also need to check the type of unsecured business loans they provide. Some creditors, mostly private ones, offer only unsecured personal loans that you can use as business credit. On the other hand, if you opt for banks and NBFCs, most of them offer collateral-free business loans. You will need to submit your business license and registration number, GST ID, bank statements, and many such documents. Knowing the types of unsecured loans will help you make a well-informed decision without any concern.

Ensure to select a creditor that offers business loans with low-interest rates and high loan amounts. Since you are opting for unsecured loans, the interest rates will be high, and that’s something you have to deal with. You must also ensure that the lender is willing to offer a loan amount that meets your need. There is no need to get a loan if the amount is not enough to meet all your needs.

Then log on to the website of the lender and complete the online application process. here you must give all your details and upload the papers as required. If your profile meets their rules, the lender will get in touch with you to confirm the proposal. After you agree to the terms, the loan process will be completed and the amount will be sent to your account. Your repayments will start from the next month and the amount will be debited to your account on a given date. Kindly ensure that the EMI amount is present in the account at least two days before the due date.

Conclusion

There are so many different ways in which you can opt for a collateral-free business loan for MSME. After reading the information given above, you will be in a better position to make a decision regarding opting for collateral-free business loans for MSME, along with the process of getting one for your business. If you still have any questions, you can contact the experts at Piramal Finance. They offer various types of business loans to help you expand your business without any issues.