With the recent pandemic, many small businesses have had to fight for survival. They couldn't rely on the lengthy, time-consuming approvals of traditional models of loan banking and required an instant solution to finance their working capital needs. This is where a collateral-free business loan comes into play. 

Our government has introduced many schemes for MSMEs and SMEs to give them the necessary financial assistance in these difficult times. With the government and many banks introducing collateral-free loans, most small businesses took advantage of these and tapped into their benefits. Let's understand the meaning of a collateral-free MSME business loan.

What is a collateral-free business loan?

Collateral means security or an asset that a lender requires from the borrower as a guarantee before granting them the desired loan. The lender repossesses such a security or asset from the borrower after the borrower pays off the loan in full. However, upon defaulting on the repayment, the lender seizes this asset, and they have the right to sell it to cover their losses. 

Small businesses or startups don't have many assets and can't afford to take the risk of putting up those assets for a loan. In these turbulent times, to help such businesses get a starting push and get back on track, the collateral-free business loan came into the picture. 

Collateral-free business loans are business loans that are free from any collateral funding requirements. Businesses can get the desired funds promptly and focus on their growth. These may be term loans ranging from 1-10 years or short-term business loans for regular business activities like staff remuneration or inventory handling.

Collateral Free Business Loan Interest Rates

Features of Business Loan Without Collateral in India

We designed a collateral-free small business loan to give momentum and the desired thrust to small and medium-sized businesses. The flexible features of collateral-free business loans make them quite popular with the majority of these new companies. Some of these features are:

• Quick processing

Due to our fast disbursement procedure, the authorization of your loan will be granted within three business days of receiving it. You should have little difficulty obtaining a loan of up to Rs. 10 crores. We make every effort to expedite the loan's implementation and guarantee that it is made available within the stipulated time frame.

• Options for Repayment

There are currently a variety of repayment alternatives available for business loans. Lenders are mostly aware of the difficulties inherent in small business operations. They do, however, have a range of adjustable terms and conditions. They can allow for a variable EMI dependent on the company's financial position and also allow for bullet payments for recurring payments.

• Credit Rating

FlexiLoans loans are an excellent way to improve your business's credit score, and we report loan activity to all three major credit bureaus. Additionally, a business loan from FlexiLoans is advantageous for businesses that have recently seen their credit score fall as a result of unforeseeable market conditions.

• Minimum Required Documents

One of our primary advantages is that we accept loan applications with minimal paperwork. As a consequence, it would not be necessary to provide lengthy documentation to apply for a business loan with us. Additionally, because we provide company loans without needing equity, there is no requirement for asset or collateral documentation. Electronic uploading of business financing paperwork is feasible.

Benefits of Collateral Free Business Loans

Our country thrives on small and medium businesses, as the growth of these enterprises, in turn, gives a boost to the economic growth of the country. We have already discussed a major benefit, i.e., businesses need not pledge any security or guarantee of any sort while applying for the loan. Entrepreneurs with no assets can also apply for the loan. Let's discuss some other benefits of a collateral-free business loan for small and medium-sized enterprises::

• Reasonable interest rates

SMEs and MSMEs not only get collateral-free financing for their businesses but can also avail of such attractive interest rates for business loans. These subsidised interest rates make such loans more popular with industries. Also, a good credit rating for the borrower can help in further reducing the interest rates on loans.

• Faster approval of loan applications

Another advantage of a collateral-free business loan is that borrowers get the funding quickly and easily. There is no wastage of time in the valuation of assets or transferring security documents into the lender's name. The timely processing of applications by the credit rating agencies makes these loans a hassle-free option for the borrowers. Borrowers using the FlexiLoans mobile app can only apply for loans from their phones.Also, its online application does not take more than 10 minutes, and the borrower does not need to visit any branch during the whole loan approval process.

• A multitude of loan options

With major renowned banks offering collateral-free options, borrowers can choose from various collateral-free business loans as per their suitability. They can even invest in government-introduced schemes specially designed for this purpose. A borrower can avail himself of a long-term loan or a short-term loan. Whether for inventory requirements, expansion of office space, or the purchase of new machinery, collateral-free loans are available to fulfill different purposes.

• Flexible repayment timelines

Apart from the reduced interest rates, borrowers also get a customized, flexible repayment option for up to 36 months. As your revenues grow, you may choose to repay your loan sooner to achieve debt freedom sooner. Multiple repayment alternatives from FlexiLoans are specifically tailored to your financial circumstances and may be beneficial in this circumstance.

• End-use adaptability

The instant business loan contains no limits on the utilisation of funds. You may use the cash to acquire new equipment, improve current infrastructure, recruit additional workers, or satisfy other technical needs.

• Simple access to finances

Occasionally, small businesses face an urgent need to inject cash into their businesses. With an online application that needs minimal documentation, you may expedite the acceptance of your collateral-free business loan. Online document submission expedites the verification procedure and expedites disbursement.

How to Apply for a Business Loan Without Collateral?

• Online Application:

Log on to the FlexiLoans website and complete the application form by correctly filling in the relevant information. FlexiLoans will use these details to assess your eligibility for the collateral-free business loan

• Upload the required documents online:

Upload all necessary documents, such as KYC documents, current account bank statements, and business KYC documents.

• Credit Analysis:

We'll assess your business results and operations to calculate the amount of money you'll be eligible to borrow and the interest rates that will apply. Our loan officers will assist you in understanding the bid and making the right decision.

• Loan Disbursement:

FlexiLoans will share the loan agreement after verifying the documentation and approving the loan. The disbursement of funds to the applicant's account is within 48 hours of signing the document.

Business Loan Eligibility Criteria without Collateral

To ensure quicker loan approval, we kept the business loan guide short. Here is the paperwork you must provide to ensure that your application is reviewed as quickly as possible. 

• An individual must be 21 years of age when applying for the loan and not more than 65.   
• Collateral-free loans are available to individual corporations, sole proprietors, and private companies involved in trading, production, or services. 
• The applicant must have worked in the industry for three years and have at least five years of experience. 
• offers collateral-free loans to those businesses that have been running for at least a year and have monthly total sales of at least $2,000,000. 
• an applicant who has never defaulted on a loan with a financial institution. 
• The requirement of a patron's assurance from the Indian Patent and Trademark Office is a must. 
• The previous year's revenue should be fully audited by a CA. 
• Proof of residence and business location 
• If the company has been in service for even more than 3 years, you can apply for a collateral-free loan. 
• We would also ensure that there are no errors in previous accounts and, as such, the company is tax compliant.

Finally, verify that the paperwork is in order well in advance of applying for a loan, and hold it in digital format so that it can be submitted during the application process

Documents Required for Collateral Free Business Loan

• Personal KYC: PAN card 
• Residential Address Proof (Anyone): Rent agreement, driver's license, voter's ID, ration card, Aadhaar Card, passport 
• Banking: Last six months' current account bank statement 
• Business KYC (anyone): GST registration certificate, shops, and establishment certificate
• Financial documents (for loans greater than Rs. 20 lakh): last two years' audited financials Six-month ITR and GST returns

MUDRA Yojana

It is an Indian government programme for small and medium-sized businesses. MUDRA Yojana is available to non-farming and non-corporate SMEs under PMMY. Small businesses can apply for loans up to Rs 10 lakh under the plan. 

There is no specific need for businesses obtaining a PM MUDRA loan to provide security or collateral to secure the loan amount. Additionally, there are no processing fees. Borrowers can get up to Rs 10 lakhs in MUDRA loans.Even borrowers can check the Mudra loan interest rate for a better understanding of rates and charges. 

Borrowers may apply online for a MUDRA loan in one of three categories: 

• Shishu Loan:

Businesses can apply for a credit of up to Rs. 50,000 under this program. It is specifically for small businesses that are either just starting or wish to start one.

• Kishor Loan:

Under this plan, a business owner can apply for a business loan of up to Rs 5 lakh. It is specifically for borrowers seeking additional funding to grow their business operations.

• Tarun Loan:

It is the third type of loan available under the Pradhan Mantri Mudra lending arrangement. Under this program, the applicant may be eligible for a loan of up to Rs 10 lakhs.

Frequently asked questions