Collateral Free Loan

Collateral Free Business Loan - Check Eligibility Criteria & Interest Rate

April 30, 2022 • 11479 views

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.

What is Collateral?

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.

What are Collateral Free Loans?

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.

What are the Features of Collateral Free Loan?

  • Loans are available for an amount up to Rs.2 crore (Rs.1 crore for retail business) as per terms of the MSMED Act 2006.
  • There can also be a loan for a higher amount. However, any amount exceeding Rs 1 crore would require the backing of collateral. This collateral can be in the form of plant and machinery, land or any other business asset owned by the owner.
  • Both, new and existing MSEs can get loans

Benefits of Collateral Free Business Loans

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:

1. No protection required

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.

2. Improves and builds credit history

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 CIBIL 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.

3. Makes loan approval quick:

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.

The Documentation Required for A Collateral Free Loan

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:

  • KYC Documents: PAN Card, Aadhaar Card, Passport, Electricity bill/Rent agreement
  • Address Proof: Utility bills, Passport, Rent agreement
  • Financial Details: Bank statements

Note - The above-mentioned list of documents is indicative and can vary.

Offers flexible payments:

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.

What are the Eligibility Criteria to Get A Collateral Free Loan?

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

How to apply

To apply for a Business Loan, you must complete the following steps first:

  • You need to start your business operation, get all the licenses, and register your business. 
  • You also need to open a current account with the bank and get a business PAN card. 
  • You need to prepare a detailed project report that indicates its viability along with quantitative metrics like ROI, payback and break-even. 
  • You should include professional assistance in preparing a feasibility report to convince lenders of the business' prospects. 
  • You need to personally approach the lender and apply for the Business Loan. It is advisable to approach 2-3 lenders so that a wide range of options are available for loan approvals.

Conclusion

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.

Frequently Asked Questions

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:

  • Step 1: Visit Home of Poonawalla Fincorp official website
  • Step 2: Select the loan option and then click ‘Apply Now’
  • Step 3: Submit your details and documents when filling out the application form
  • Step 4: Wait for the verification and assessment of your application
  • Step 5: Get loan approval confirmation
  • Step 6: Authorize the disbursal of the loan amount

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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