How To Get A Small Business Loan Without Collateral?

The loans taken for expanding or managing the business costs are referred to as business loans. Small business loans are usually taken by startups who don’t have the necessary funds to initiate a business. Even established businesses can apply for these loans to manage sudden expenses or emergencies. Banks, NBFCs (Non-Banking Financial Companies), and other financial institutions provide business loans at competitive interest rates. 

Many loan providers also offer small business loans without collateral. Collateral is any tangible asset that a bank can use to recover losses if a borrower defaults on the loan. It can be property, promoter shares, or any other asset that can be pledged while procuring the loan. Collateral-free loans are also identified as unsecured business loans, as any security or collateral does not secure them. Women entrepreneurs can also avail of small business loans for women without pledging any assets like property, gold, financial securities, etc.

This article is a detailed guide on how to get a business loan without collateral in a hassle-free manner. 

How to apply for small business loans without collateral?

Follow the below steps to apply for small business loans without submitting collateral:

Step 1: Check the latest offers & your eligibility

Before applying for a small business loan, you can check the latest small business loan offers from banks, non-banking finance firms, peer-to-peer lending firms, and other financial institutions. Visit their website or download their mobile app and check whether you fulfill the eligibility criteria. 

Check the business loan interest rates, the credibility of the lending firm, loan tenure, and other factors before choosing a loan provider. Upon finalizing a lender, you can visit their official website and apply for a small business loan online. 

Step 2: Be ready with the documents

The following documents will be asked for by the lender when you apply for small business loans:

• KYC documents
• PAN card of the business 
• Business proof
• Balance sheets, quarterly business reports, and other financial documents 
• Business address proof
• Duly filled and signed loan application form
• Your proof of identity 
• Bank statement of the current year

Step 3: Explain how you will repay the loan

Some loan providers may ask for additional documents as well. Apart from these documents, you may also need to explain how you plan to repay the loan amount, especially if you have applied for a massive loan. Also, note that the lender might ask for collateral for loans of higher value. 

Some banks also provide pre-approved small business loans to individuals based on their eligibility and credit score. 

Step 4: Documents will be verified before loan approval

Once you apply for the loan with all the aforementioned documents, the loan provider will verify the authenticity of the documents. If everything goes well, the loan application will be granted, and you will receive the loan amount shortly in your bank account. 

Small Business Loans Schemes by GOI

Some of the small business loans schemes launched by the Government of India are explained below:

1. MUDRA Loan under PMMY

The MUDRA loan, provided through the Pradhan Mantri MUDRA Yojana, was established by the Indian government in April 2015 to support new business ventures in the country. Beneficiaries of this program are eligible for a loan subsidy of up to Rs 10 lakh.

2. Stand-Up India Scheme

Members of the SC/ST communities are targeted under the Stand-Up India Scheme, which aims to help them become business owners. At least one borrower from each eligible caste or tribe per bank branch would be provided a loan of up to Rs 1 crore to start a greenfield business as part of this initiative.

3. Credit Guarantee Scheme (CGS)

Micro and small businesses are the focus of the Credit Guarantee Scheme. People operating such businesses in the country can access finance without the need to put up collateral.

4. Bank Credit Facilitation Scheme

When applying for loans from commercial and national banks, small and micro units can get some help from the Bank Credit Facilitation Scheme. Free help is offered to everyone who needs it.

Important points to remember while applying for a small business loan 

These are some important points that you must consider before applying for a small business loan without collateral:

• Established businesses can apply for small business loans without submitting collateral. However, new businesses might not get this luxury. If you are planning to start a new business or startup, you must create a well-documented and researched business plan that convinces the lender to grant you a loan. 
• You can also apply for a loan individually if you don’t require a huge amount. It means that you can apply for pre-approved business loans that are usually approved without any collateral requirement. Clean credit history and a credit score above 700 might help you secure a loan at an affordable interest rate. 
• Online lending firms also provide unsecured MSME loans up to Rs. 1,00,00,000. You can apply for business loans from their app or website and get approval within 48 hours. 
• Loans without guarantee or collateral can be provided at a higher interest rate. You can use an interest rate calculator to determine the amount you will be paying as interest after procuring a small business loan.

Conclusion

Getting a small business loan for your business could prove challenging if you need to guarantee the loan with collateral. Startup owners could look into the variety of options available, and it is important to research each lender well before committing. Those who cannot provide security for their loans may have to deal with stricter terms and higher interest rates. Pick the loan terms most helpful to you and your business.