How to Get Collateral Free Loan in India?
By Anupama Deshpande | Jan 16, 2019

Viable small businesses require funds to grow more. These funds can be made available through business loans. Sometimes businesses may need to avail collateral free loans as they may not always have the requisite collateral.

Collateral free loan is the loan which can be extended without any collateral or security. Under this type of loan, lender is exposed to risk in absence of collateral hence the rate of interest on such loans is comparatively on higher side.

Suggested reading Beneficial Insights of Business Loan that You Need to Know

Following are the sources which will answer the question how to get collateral free loan in India:

This is a collateral free loan facility specially designed for Micro and Small Enterprises (MSE) under the Credit Guarantee Fund Trust. Collateral free loans up to Rs. 1 crore for Retail Traders and up to Rs. 2 Crores for Micro & Small Enterprises can be availed under this scheme as per the terms of the MSMED Act, 2006. Sole Proprietorship Firms, Partnership Firms, Private limited Companies, MSE excluding Retail traders, Public limited Companies, etc. are eligible to apply for loan under this scheme.

Credit Facility under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

Two types of business loans are extended under this scheme:

Cash Credit or Working Capital Loan: This is extended for meeting working capital finance requirement.

Term Loan: This is extended for purchase of commercial assets and business expansion needs

Loan Tenure

Loan under this has flexible repayment tenure up to 5 years. Major Public as well as Private Banks offer collateral free loans under this scheme.

Interest Rate

Interest rate on CGTMSE Loan is somewhere between 11.00% and 19%.

Suggested reading Salient Features of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

Government of India has launched Pradhan Mantri Mudra Yojana (PMMY) on 8th April 2015 with a concept of 'funding the unfunded' micro enterprises in the country. It is government's finance scheme to provide business loan to new or existing micro or small scales businesses from rural areas in India.

Mudra Loan Amount

• Shishu: Loans up to Rs.50,000 provided to only startup businesses
• Kishore: Loans above Rs.50,000 and up to Rs.5 lakh provided to only those businesses that have already started up but need financial aid for establishing
• Tarun: Loans above 5 lakh and up to Rs.10 lakh provided to only those business that are already established but require funds for expansion

Credit Facility under Mudra Loan

Two types of business loans are extended under this scheme:

Cash Credit or Working Capital Loan: For meeting the Working Capital Requirement of the Business Unit.

Term Loan: For meeting different purposes that require longer loan tenure.

Margin under Mudra Loan

Margin will be taken is based on the policy framework of the bank, depending upon overall guidelines of RBI in this regard. Banks may not insist for margin for Shishu loans.

Interest Rate

Interest rate on Mudra Loan is somewhere between 11.50% and 20%.

See also What is Pradhan Mantri Mudra Loan?

Many fintech companies like Capital Float and Lendingkart are also offering collateral free loan facility. Under such types of loan, the eligibility criteria are not very strict but flexible. Further, there is no requirement for guarantor or any type of security to avail the loan. Such fintech companies use their own AI algorithms, based on financial performance, credit history and business performance, to measure credit worthiness of borrowers.

Such companies offer loans to existing businesses only and new businesses may not be able to borrow from these companies.

The borrower has options to choose from various lenders and bargain on interest rates. Entire process is online and involves minimum paperwork.

Interest Rate and Loan Tenure

Interest rate on Fintech Lending is somewhere between 16.00% and 25%. Loan under this has flexible repayment tenure up to 5 years.