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

What if you need a loan for your business but have no assets to use as collateral? Is financing still possible then? In most cases, the answer is yes. In India, several reputable banks and NBFCs offer collateral-free business loans.

Due to intense competition in the Indian corporate sector, getting the right amount of funding at the right time is crucial for survival and growth. And for this reason, it makes more sense to borrow money from a reliable financial institution than to use your own money, approach a local moneylender, or ask close friends or family members.

Getting a secured business loan can be difficult for small businesses or start-ups because they do not have enough assets to use as collateral or guarantees. However, if you meet the requirements of the loan provider and exercise caution, you may be able to get a collateral-free business loan. So, stick to your big dreams.

This post discusses how to get a collateral-free loan in the US. Read on!

How to get a collateral-free business loan?

1. Online Term LoansThese loans come in two different varieties: short-term loans and long-term loans. A predetermined advance payment is made on long-term loans, which the borrower can then repay over a longer period through regular monthly payments. They are simpler and take less time, but they are less affordable than SBA loans. Short-term loans, which are repaid in small, frequent instalments over a short period, are slightly more expensive. These are popular collateral-free business loans. 
2. SBA (Small Business Administration) LoansThe Small Business Administration (SBA) provides small business loans to business owners through its network of affiliated lenders. Although it is a collateral-free loan option, this loan is one of the most cost-effective options available. Every entrepreneur should consider these loans, even though they have strict eligibility requirements and take some time to process. 
3. Business Credit CardEveryone is familiar with this loan option, which one can use in addition to more conventional loan practises for their company. It has an interest-free loan for a while and a credit card with a 0% APR. 
4. Merchant Cash AdvanceAlthough collateral may be needed for this type of loan, the financing company simply buys your future assets in this situation. In this kind of loan, the business gives you an advance payment, and you must repay it with a portion of each day’s card sales. This is one of the most expensive financing options you can find to get a loan for your business. 
5. Establishing a FranchiseIf you need a small business loan, one option is to open a franchise because banks and private lenders prefer to finance businesses with strong brand recognition. 

Government-Initiated Loan Programs for Indian Small Businesses and Start-ups

1. CGTMSE LoanThe Government of India, in collaboration with foreign banks, public sector banks, certain regional rural banks, etc., has launched the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) loan scheme to provide financial assistance of up to Rs. 1 million to start-ups and existing enterprises. A business entity must meet certain eligibility requirements and demonstrate profitability to benefit from this collateral-free loan program. 
2. MUDRA LoanThe Micro Units Development and Refinance Agency (MUDRA) is a loan programme without collateral or guarantees established to finance the ‘unfinanced’. The loan programme provides affordable financial assistance to small and microenterprises.
   • Kishore- Beneficiaries are offered financial support ranging from Rs. 50,000 to Rs. 5 lakhs after assessing various factors such as growth, turnover and scale of the business.
   • Shishu- For start-ups and businesses that fall into this category, Mudra offers Rs. 50,000 in financial assistance.
   • Tarun- Financial help of up to 10 lakhs will be provided in this category after assessing the needs of the enterprises. 
3. Loan Program for Market Development AssistanceThe programme aims to encourage MSMEs (micro, small, and medium-sized enterprises) to participate in trade fairs and other international events. Financial support is as follows:
   • The registration fee is refunded in full (75%).
   • Participation of SMEs in global manufacturing trade shows and exhibitions
   • taking part in anti-dumping cases
   • For the first three years, SMEs receive a 75% reimbursement of the GSI’s annual fee.

Eligibility criteria for collateral-free loans

1. The prerequisite for availing of a business loan without collateral is Indian citizenship.
2. Depending on the lender, loan amount, and term of the loan, a different credit score is required for approval. However, a score of 700 or higher is considered reputable.
3. A self-employed person is required to apply for a business loan.
4. Most lenders only grant loans to borrowers who fall within a certain age range. This usually ranges from 25 to 66 years of age.
5. Some lenders require the business to have at least three years of operating history.

Documents required to apply for a loan without collateral

1. Proof of address and identity: You will need to present your Aadhaar card, passport, or driving licence as proof of your identity and address.
2. Proof of business registration: In addition, lenders require proof of business registration.
3. PAN card: To verify your financial identity, all lenders require your permanent account number (PAN).
4. Bank statements: Some lenders may check your bank statements for the last six months to see how stable your finances are.

Conclusion

It can be difficult to get a loan for your business, especially if you have to put up collateral, which increases your risk. In addition to the SBA, businesses can also get loans without collateral from other sources, but it’s important to read the fine print before signing anything.

Unsecured business loans are the most practical choice for financing a business, as they are easy to obtain and do not require collateral. Piramal Finance offers businesses tailor-made, hassle-free unsecured business loans and keeps their problems at bay with an efficient application process and a higher qualification threshold.