5 Ways to Get MSME Loan Without Collateral

Every business needs external financial support at some point in time, especially during its growth phase. That is when entrepreneurs take a Business Loan. However, many financial institutions need some kind of security before sanctioning a loan, called a secured loan. It can be a residential, commercial property or any other asset of value. Companies with limited assets often find it challenging to obtain such loans. 

Secured loans also put the collateral asset at risk because if the borrower fails to repay the loan, the lender holds the legal right to seize and sell the asset to recover their loss. An MSME loan without collateral from Hero FinCorp is a better option in such a scenario.

This article will look at five ways to get collateral-free loans to MSMEs.

What is an MSME Loan without Collateral?

An MSME loan without collateral is an unsecured Business Loan that entrepreneurs can borrow without providing any asset as security. Lending institutions determine applicants' eligibility based on their business profitibility, turnover, and credit history. Typically, these are short-term loans with no end-use restrictions, allowing borrowers to cover their expenses and repay in convenient EMIs.

Benefits of an MSME Loan without Collateral

Let’s look into the benefits of collateral-free loans to MSMEs:

• The primary advantage is that MSMEs can obtain unsecured credit without providing any collateral or security.
• The eligibility requirements are easy, and documentation requirements are minimal, making loans easily accessible to entrepreneurs planning to manage or expand their businesses.
• No collateral requirement and minimal documentation make approval and disbursal much easier and faster than conventional Business Loans.
• Collateral-free Business Loans are highly flexible in terms of loan amounts, interest rates, and repayment tenures.
• The convenient and paperless Business Loan application procedure allows loan access online through the lender’s website.
• An MSME loan without collateral helps build a credit history with regular EMI payments. 

NBFC Loans for MSMEs Without Collateral

After understanding what collateral-free Business Loans are and their benefits, let’s see how to secure an MSME loan without collateral.

Loans under the CGTMSE Scheme

The CGTMSE scheme by the Indian government offers collateral-free term loans of up to Rs 10 Lakh. Besides the financial support, they also provide a guarantee cover of up to 75% of the sanctioned loan amount, which is 80% for women and businesses based in the North-East regions of India. The repayment tenure can last ten years, and the interest rate is economical.

MUDRA Loans

MUDRA stands for Micro Units Development and Refinance Agency, a government initiative to provide unsecured MSME loans to small non-farming businesses. The tenure may range from 12 to 60 months, and the interest rate depends on the business requirement and profile. Aspiring borrowers can obtain Shishu, Kishor, or Tarun loans according to their funding requirements in the form of term loans, working capital loans, or overdraft facilities. 

Stand-Up India Scheme loans

Women entrepreneurs and those in the SC/ST categories are eligible for collateral-free Business Loans under this scheme. Borrowers may use these loans to set up businesses in the services, manufacturing, trading, and agri-allied sectors. The loan amount may range from Rs. 10 Lakh to Rs. 1 Crore; repayment tenure can be up to 7 years, and interest rates are affordable.

MSME Loans in 59 minutes

A loan portal for MSMEs provides collateral-free loans of Rs. 10 Lakh to Rs. 5 Crore. The scheme aims to connect the applicant with loan providers and provide funding access to MSMEs within 59 minutes. The repayment tenure can be from 1 to 15 years, and the borrowers can use the loan amount to purchase machinery, diversify their business, develop infrastructure, etc. 

NBFC Loans for MSMEs without Collateral

Several Indian NBFCs provide collateral-free loans to MSMEs. Borrowers can use them to expand their business, build working capital, or cover regular expenses. New-age NBFCs like Hero FinCorp have lenient eligibility criteria, minimal documentation requirements, and quick processing time. Since these loans do not require registration to any scheme, they are much faster to obtain without hassle. Other advantages include ample loan amounts of up to Rs 40 Lakh, competitive interest rates, flexible repayment terms of up to 60 months, and digital Business Loan application procedures.

Conclusion

Collateral-free loans to MSMEs offer multi-faceted benefits to start-ups and small companies. When looking for an MSME loan without collateral, follow the quick loan procedure at Hero FinCorp and get the required funding quickly without any paperwork or branch visits. 

Frequently Asked Questions

1. Is a good credit score necessary for availing an MSME loan without collateral?

Since collateral-free Business Loans are riskier for loan providers, your credit score does matter in determining your loan eligibility. 

2. What is the repayment tenure for MSME loans without collateral?

Although the repayment tenure may vary based on the scheme and loan company, at Hero FinCorp, it is up to 60 months.

3. How long does it take for the loan approval process?

Thanks to the digital loan procedures, the approval process only takes a few minutes after submitting the Business Loan application.

4. Can I prepay or foreclose my MSME loan without collateral?

Yes, most loan providers offer the option to prepay or foreclose the loan. However, check the prepayment charges beforehand.

5. Can I use an MSME loan without collateral for working capital purposes?

Collateral-free loans to MSMEs have no end-use restrictions. That means you can use them for any purpose, including building working capital.