Getting a small business loan is both simple and difficult. A business loan is simple to obtain if the company has a track record of consistent income and stability. Furthermore, if all of the business loan paperwork is in order, the process is sped up. Obtaining a business loan, however, remains a challenge for many budding entrepreneurs. The primary cause of this is a lack of collateral.
Non-performing assets have recently increased in the banking industry. In FY 2022 alone, public sector banks in India reported a total of over 5.4 trillion Indian rupees in non-performing assets (NPA). As a result, most banks are under pressure to lend with caution. An increase in scrutiny methods has made it tough for MSMEs to secure a business loan.
It is essential that MSMEs prosper in our country. Over 45% of India’s GDP comes from MSMEs; this highlights the importance of small businesses for the growth of our economy.
Thankfully, a large number of NBFCs and online lenders are assisting MSMEs in fulfilling their financial needs by offering them business loans in India without collateral.
Advantages of Collateral-Free Business Loans
Traditional bank loans may be the primary choice during prosperous economic times, but in the current climate, banks are inclined to tighten their lending standards. Instead, there are multiple NBFC Business loan offers you can go with without collateral. The advantages of such loans are discussed below:
- There is no need for collateral
The first and main advantage of obtaining an unsecured business loan is that no collateral is required. Business owners who previously could not obtain a loan for their company owing to a lack of security can now obtain business loans. A business loan in India without security allows the business owner to obtain capital to grow his company without having to worry about the asset being hypothecated.
- Quick loan application process
MSMEs require short-term business to cater to urgent financing needs. Applying for a business loan becomes futile if the application doesn’t get approved on time. This is why the processing and approval time of a business loan should be considered by all applicants.
When compared to secured loans, unsecured business loans without collateral get processed faster. The business owner only needs to visit the lender’s website to apply online without offering any collateral. By just completing the loan application form and uploading the required documents online, businesses can now avail loans quickly.
- Simple Eligibility Criteria
The eligibility criteria for a business loan with no collateral are simple to meet. To begin, there is no requirement to offer the business as collateral. The company must have a business vintage of at least two years and have proper income tax returns.
Following that, the company must have an annual turnover of Rs. 10 lakhs and present a bank statement for the previous nine months. Furthermore, the borrower must own either his home or his business, or both. If you and your business are found to be eligible, the business loan may get processed in a few hours.
- Adaptable Repayment Terms
Collateral-free business loans come with flexible repayment terms. This gives the borrower the freedom to select the repayment period that best fits his budget. For example, a company can opt to pay back a loan for up to Rs. 7.5 lakhs over a tenure of 36 months. The borrower may also select an 18-month loan duration under the flexible repayment tenure offer.
Documents Needed to Apply for Loans Without Collateral
- A properly filled-up and signed application form
- KYC documents, such as voter ID card, Aadhaar card, and PAN card.
- Evidence of income
- Other business-related documents such as tax returns, financial reports, Memorandum of Association (MOA) and Articles of Association (AOA).
Eligibility Requirement for Collateral-Free Loans
To apply for a loan without collateral, you need to meet the following criteria:
- As an applicant, your age should be between 18 and 65.
- You must be an Indian citizen.
- You should have a good credit history and a credit score over 650. You and your business must have an excellent repayment record for this.
- All business-related documents and KYC documents of the borrower should be in place and up-to-date.
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Bottom Line
If you, as a borrower, meet all of these criteria, the chances are high that you will be approved for the loan. Notably, NBFCs have their own online tool for determining a borrower’s creditworthiness. This enhances the likelihood of the loan application being granted.
Because they don’t require collateral and can be used for any purpose, collateral-free loans give borrowers flexibility and convenience—they simply charge interest on the amount borrowed.
