Why You Need a Collateral-Free Business Loan for Your MSME

Every Micro, Small, and Medium Enterprise (MSME) owner has to improvise a bit to accommodate their desired growth through the optimum utilisation of limited resources. However, traditional business loans are issued against collaterals, thereby creating a hurdle for these small businesses which doesn’t have assets to pledge. In such cases, a business loan works as a tool which allows the positive inflow of cash into the business without having to risk any of its assets.

What is a Collateral-Free Business Loan?

Collateral-free business loans, unlike traditional loans, don’t require you to submit your assets or property, as a security/Collateral against the requested loan. Here, finance lending organizations take the assistance of different performance metrics, like the estimated cash flow, existing financial records, and business plans, to determine the possible loan amount as well as the business’s eligibility. This gives all Micro Small Medium Enterprises (MSMEs), an equal opportunity to get easy access to funding even when they do not have any assets to put against for a business loan. 

Collateral-free business loans can be utilised to fulfill the following business endeavors:

• Purchase of assets: An MSME can utilise a Collateral-free business loan by investing it in the purchase of assets or anything that fuels the growth of the business.

• Enhancing the business: Collateral-free business loans can be used for the purchase of raw materials or investment on finished products, that’ll meet the customer demands.

• Contingency Plan: Collateral-free MSME business loans can be used to fulfill unplanned business needs.

• Capital for business operations: Collateral-free business loans can be used to fund business operations and to bridge the gap between revenue and expenditure.

Benefits of Collateral-Free Business Loans for MSMEs:

• Easy Access to Funds: Collateral-free loans are easily accessible to all businesses to enhance their business operations.

• Limited Risk Factor: As Collateral-free loans do not require submission of assets hence it automatically reduces the risk factor for the loan beneficiary.

• Diverse Usage: Collateral-free loans can be used for multiple purposes and are adaptable.

• Easy Approvals: Approvals on collateral-free loans are easy to get in comparison to traditional loans. 

• Better Credit Score: With timely payment of dues the credit score of the business also increases.

How to Apply for a Collateral-Free MSME Loan:

Various NBFCs follow different collateral-free loan application processes. Most Non Banking financial companies have a fully online application process. The application process is generally divided into 3-steps which are then followed by the loan approval and disbursement. And if you fulfill the eligibility criteria, you can apply for business loans that could be processed within a short span of time. Here’s a step-by-step procedure followed by most Non Banking Financial Companies for their collateral-free business loan process:

Step 1: Checking the Eligibility

The first step to applying for a collateral-free MSME loan is the eligibility check. NBFCs can provide eligibility checks in less than a minute and are often available in multiple regional languages on their websites. However, it's important to note that, Not all NBFCs offer instant eligibility checks. Some may require more information from you before they can determine your eligibility. It's always a good idea to check the specific NBFC's website for more information about their eligibility criteria and application process.

Step 2: Screening the Application

The eligibility check process is then followed by a procedure of screening of the submitted loan application, where the business is screened by verifying the KYC and details of registration. Following which the entity assesses the purpose of the loan and its alignment with the plan of business, to ensure that the funds are utilized effectively.

Step 3: Uploading the Documents

The third step involves the uploading of documents. The documents are:

• KYC, applicant, co-applicant, business KYC (ID and address proof) 

• PAN Card of the applicant

• Documents of business registration

• Bank statements (Last 12 months)

• GST registration (if available)

• Business vintage proof.

Step 4: Approval of the loan application

Once you upload your documents, your loan application will be evaluated by the NBFC and if all goes well the organization will approve your MSME loan.                                                                  

Step 5: Loan Disbursement

Upon approval, the loan amount will be disbursed to your account within a short span of time, which varies from NBFC to NBFC. Many offer online portals where borrowers can track application status, upload documents, and receive funds electronically. This digital approach streamlines the process, saving time and effort for both the borrower and the NBFC. However, disbursement timelines can still vary depending on the loan amount, complexity of the case, and internal verification procedures.

Conclusion:

Loans without collateral for Businesses are a single solution for all the Micro Small Medium Enterprises that can be crucial in the economic growth and welfare of a business. Businesses can get access to funding without even putting their own assets as a security against loans. So, it is important to borrow money responsibly for a successful future. So, explore your options, choose wisely, and watch your business flourish!