India is the hub of Micro, Small, and Medium Enterprises (MSMEs) and these enterprises make a huge contribution to the Indian economy.
Irrespective of their considerable number and economic importance, MSMEs in India reel under the lack of access to timely & adequate credit. The first and foremost reason for the hesitancy by lenders is the high-risk perception of the MSMEs. In addition to this, not all MSMEs have collateral to provide for the loan. To offset this, some leading banks, and Non-Banking Financial Companies (NBFCs) in India offer business loan without collateral to MSMEs.
Read this article further to know everything about unsecured MSME Loans.
What is a Collateral-Free MSME Loan?
MSME Loan without collateral means that the business owner will not have to provide any collateral with the bank to avail of a loan. However, it must be noted that a loan defaulter would still face legal actions from the lending institution in case of a payment default.
These collateral-fee loans can be used for buying machinery, hiring staff, meeting working capital requirements, business expansion, etc. The limit of the maximum loan amount may differ from lender to lender. Hence, these unsecured loans can be used to meet various business-related expenses.
What Are the Features & Benefits of Collateral-Free MSME Loans?
Below mentioned are some of the key features and benefits of unsecured MSME Loans:
- Collateral-free Credit: You can avail of collateral-fee loans without providing any collateral or security with the lender. Meaning that you won’t have to liquidate your assets to get funds for the company during financial crises.
- High Loan Amount: You can avail of a loan of up to ₹50 Lakh to fund any business-related expenses without any compromise.
- Less Paperwork: These collateral-fee loans can be availed online with less paperwork. You will only have to submit some basic documents to procure MSME Loan.
- Faster Processing: The absence of a collateral has meant fast and simple loan processing of a MSME loan.
- Flexible Repayment Tenure: Various lending institutions provide MSME Loans with flexible repayment. The flexible loan repayment enables you to make your repayment as per your financial standing. You can either choose to make smaller or bigger EMI payments based on your income and repayment ability.
- Attractive Interest Rate: Collateral-free MSME Loans are offered at low interest rates, thus, enabling borrowers to achieve their business goals without the burden of high interest.
What are the Unsecured MSME Loan Eligibility Criteria?
Though the eligibility criteria for unsecured MSME Loans may differ from lender to lender, below mentioned are some generic eligibility parameters:
- Age: The applicant must be at least 22 years of age at the time of loan application and at the most 65 years of age at the time of loan maturity
- Business Vintage: The applicant must have a business vintage of a minimum of 2 years
- Annual Turnover: The applicant’s business must have a minimum turnover of ₹9 Lakh
What are the Required Documents for an Unsecured MSME Loan?
Documents required for Business Loan are mentioned below:
- KYC Documents: Company PAN Card, Director/Proprietor/ Partner PAN Card, Aadhaar Card, Electricity Bill/Rent Agreement/Passport.
- Business Documents – Business Registration Proof
- Business Address Proof: Rent Agreement/ Utility Bills
- Financial Documents: Bank account statements for the last 6 months
Please note that the above-mentioned list of documents required for business Loan is indicative, and the lender may require some additional documents during the loan processing.
Where to Get an Unsecured MSME Loan?
There are various lenders in India that offer collateral-free MSME Loans. But the best way to avail an unsecured MSME Loan is from new-age lenders such as NBFCs as their eligibility requirements are lenient. Also, the documentation requirement is minimal, and the loan processing time is faster. NBFCs may also allow you to structure your repayment according to your business’s cash flow. Most NBFCs provide these collateral-free loans at attractive interest rates. So, you can avail of an MSME Loan for meeting your business’s working capital requirement, buying/upgrading machinery, hiring new staff, and much more.
If you require an MSME Loan, don’t worry about providing collateral to avail of a loan. You can expand your business without needing to pledge your assets. MSME Loans without collateral offer plenty of benefits to MSMEs and start-ups.