Collateral free loan refers to any loan that does not require any asset, security deposit or the backing of a guarantor. Theseare also called unsecured loans. Collateral free business loans are unsecured and consider your current income, cash flow and business viability to ensure that you can repay your loan on time.
First, let’s understand, what is collateral? Collateral is an asset that has a certain financial value against which you can borrow money. The assets that can be mortgaged for availing of a loan are immovable property, land, machinery, shares and stock, and vehicles. If you cannot repay the loan, the lender reserves the right to take permanent custody of the mortgaged asset and sell it to recover the loan amount that has not been paid.
A collateral free loan does not require you to mortgage any asset and it gives you complete flexibility to avail of any loan. You can avail of collateral free loans for personal and business purposes. Higher education, medical emergencies, as well as wedding expenses can be funded through collateral free loans. Many business loans are collateral free. The very popular collateral free loans are cash loans and term loans.
As per CGTMSE (credit guarantee fund trust for micro and small enterprises), Micro and Small Enterprises (MSEs) are eligible for collateral free loans up to Rs 1 crore. This scheme has been proposed to encourage micro and small enterprises in India. The sector has been grappling with issues like lack of funds, growth opportunities and working capital requirements. The Government of India in association with SIDBI has launched this loan to ensure the viability of SME projects.
Now that you have a better understanding of what a collateral free business loan is,here are some of the benefits of collateral free business loans:
As the name suggests, collateral free business loans are free from any requirement of collateral from the borrower. They do not compel the business owner to risk his valuable assets for the benefit of the business. Hence, by removing this obligation, these collateral free business loans allow entrepreneurs to remain confident and use the loan amount for business purposes without the fear of losing their assets.
Since collateral free business loans remove the need for mortgage security, another important aspect considered for the borrower is credit history. Since these loans are unsecured, most lenders approve collateral free business loans only based on the clean credit history of the borrower and a good credit score. Therefore, the opportunity to get a collateral free business loan is an excellent incentive to pay close attention to and make the most of your credit history.
If you are a first-time borrower, collateral free business loans can also be a great place to start working on your own and your business's credit score. You can avail of this loan without pledging any security, and by paying EMIs on time, you can build up your credit score over time and become a suitable borrower for larger loans in future.
When the lending process involves security pledged by the borrower, it takes longer to process than a collateral free loan. This is because a fair amount of time is spent in evaluating the value of the property or possession deposited as collateral and thereby determining the loan amount.
By eliminating this requirement, the lending process is simplified and hence, your business loan amount can be approved and disbursed much faster. With reputed lenders like Poonawalla Fincorp, your collateral free business loan can be sanctioned in a few minutes and will be reflected in your bank account in just 24 hours.
To apply for a collateral-free loan, you must submit some basic but important documents required by the lender for your background verification. Following is a list of documents that you can submit when applying for a loan without collateral with Poonawalla Fincorp:
Note - The above-mentioned list of documents is indicative and can vary.
Poonawalla Fincorp offers collateral-free Business Loans at flexible repayment terms and attractive interest rates. You can find Business Loan offers with a flexible repayment tenure of up to 36 months.
The eligibility criteria to avail of these loans are very simple:
- Private limited companies having SME/SSI registration are eligible to apply
- Private Limited Companies,Sole Proprietorship Firms (SPF), Partnership Firms, Public Limited Companies
To apply for a Business Loan, you must complete the following steps first:
Collateral requirement for business loans has long been a deterrent for business owners who are looking for loans and collateral free business loans have become a popular solution to this dilemma. By eliminating this requirement, collateral free business loans provide entrepreneurs with the capital they want without risking their assets in the process. They also provide an opportunity to build a credit history and expedite the loan process with quick approval and minimal documentation.
A notable example of a lender to offer such business loans is Poonawalla Fincorp, a digital financial marketplace. The collateral free business loans are available on the website with useful features such as flexible tenors and super-fast online loan processing.
1. What does a loan without collateral mean?
A loan without collateral is a loan that does not require borrowers to provide any asset as security to avail of the loan amount.
2. Who is eligible for a collateral-free loan?
A collateral-free loan can be availed of by any individual or business owner if they fulfil the eligibility criteria and submit all the required documents.
3. What is the maximum & minimum limit of a collateral-free loan?
If you are applying for a collateral-free Business Loan with Poonawalla Fincorp, you can avail of a minimum amount of ?1 Lakh and a maximum loan amount of up to ?50 Lakh.
4. Is MSME Loan collateral-free?
Yes. Poonawalla Fincorp offers collateral-free MSME Loans at attractive interest rates and a flexible repayment tenure of up to 36 months.
5. How can one get a collateral-free loan?
To apply for a collateral-free loan with Poonawalla Fincorp, you can follow the steps mentioned below:
A Loan against property is a secured loan granted when you offer your existing residential or commercial property as collateral.
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Taylor Abrams | February 02, 2023
Thanks for sharing about how unmovable property, land, machinery, shares and stock, and cars are examples of assets that can be mortgaged in order to get a loan.