Start-up Business Loan without Collateral

Start-up Business Loan without collateral means the start-up owner shall not have to submit any collateral or security with the bank to take a loan. Most of the unsecured business loans offered by financial institutions are termed as Collateral Free loans. Collateral comes in various forms and types, such as residential and commercial properties, equipment, machinery, raw materials, goods, inventory, gold, vehicles, etc.

Collateral, whether to be provided or not is the biggest concern of a start-up entrepreneur. As there are many other things at the stake of the business owners like their savings, machinery, raw material, funding, and much more. Collateral free loan makes the entrepreneur to do business at ease without worrying about providing any security or collateral at stake. The Government of India has taken initiatives to provide finances and promote these Small Scale Industries (SSIs) and Business startups. Therefore, they have introduced various loan schemes for start-ups where there is no need of providing any collateral or security.

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Government Initiated Loan Schemes for Startups in India – September 2022

Some of the key Government loan schemes initiated in the near recent years include the following:

1. MUDRA Loan under PMMY

“Fund the Unfunded” is the main motto of MUDRA loan. Providing adequate funds to the micro units and the non-corporate small business is the main purpose of the Micro Units Development and Refinance Agency (MUDRA). Bank facilitates loans under the MUDRA scheme as per the customer’s requirements.  Under this scheme, the loans which are provided are collateral-free loans.

People can avail loans under MUDRA scheme classified in three categories, such as Shishu, Kishor and Tarun:

• Shishu Loan: The government provides loans up to Rs. 50,000 in this loan scheme. This scheme is basically for the business start-ups
• Kishor and Tarun schemes are designed based on the stage of the business and the funding needs of the beneficiary. Under the Kishor scheme, loans are offered from the amount of Rs. 50,000 to Rs. 5 lakh and up to Rs. 10 lakh of loan amount under the Tarun scheme

2. Stand-Up India Scheme

Stand-Up India is a Government scheme that aims to financially empower SC/ST and women entrepreneurs of the country. Under this scheme the banks facilitate loans between Rs. 10 lakh – Rs. 1 crore, to at least one woman, SC/ST borrower for setting up an enterprise either in the manufacturing or service, or trading sectors.  The loan tenure is up to 7 years.  This scheme aims at promoting women entrepreneurs among scheduled caste and scheduled tribes.

3. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

The Government of India launched the Credit Guarantee Fund Scheme for Micro and Small Enterprises. Both new and existing enterprises are covered under this scheme. The amount of loan given to any person depends on the eligibility and viability of their business. The maximum limit of the loan given under this scheme is Rs. 1 crore per borrowing unit and without collateral. Also, this scheme gives collateral-free loans. The banks which are eligible to avail this scheme are all scheduled commercial banks, public and private sector banks, foreign banks, and selected Regional Rural Banks (RRBs) under the category of the National Bank for Agriculture and Rural Development (NABARD).

4. Market Development Assistance Scheme for MSMEs

This scheme helps in gaining exposure for Micro, Small and Medium enterprises in international exhibitions, study tours abroad, and trade fairs under the MSME India kiosk. The aim is to display the potential of MSMEs and also strengthen them. This scheme provides funding for various purposes as mentioned below:

• Participation by manufacturing SMEs in exhibitions and international trade fairs
• Contesting or initiating anti-dumping cases by MSME associations
• Reimbursement of 75% of one-time registration fee and 75% of annual fees paid to GSI by SMEs for the first three years of bar code

5. Bank Credit Facilitation Scheme

This scheme was initiated by National Small Industries Corporation (NSIC), to fund MSMEs registered in India. Under this scheme, the tenure depends upon the income generated. It varies from 5-7 years and goes up to 11 years in exceptional cases.

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6. Coir Udyami Yojana

This scheme is headed by the Coir board and aims to set up coir units across India. Under this scheme, they fund the project cost up to 10 lakh and one cycle of working capital. The total fund should not exceed 25% of the project cost. The capital expenditure is financed through a term loan or working capital in cash credit. The repayment is to be made within 7 years.

Eligibility Criteria for Startup Loans without Collateral

• Business Vintage: Should not be older than 5 years
• Innovative products must be provided by the firm
• The firm should get approval from the Department of Industrial Policy and Promotion (DIPP)
• The firm must get a patron guarantee from the Indian patent and trademark office
• Applicant with no previous defaults with any financial institution

Documents required for Loan Application

• Duly filled application form with Passport-sized photographs
• PAN card , Aadhar card, Driving License, Passport, Voter ID card, and Utility Bills as KYC Documents of the applicant
• Business registration certificate
• Any other documents required by financial institutions or lenders

Apply for Collateral-free Business Loans for Startups

To apply for collateral-free business loans, applicants can search for unsecured business loans offered by various lenders. Here you can check and compare all the loan deal options. Unsecured business loans are the only type wherein collateral is not required. However, the rest of the types of business loans do require collateral. Also, check for Govt. schemes offering business loans without collateral or security.

Also Read: How to get collateral free loans for MSME?

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FAQs

Q. What are Collateral Free Loans?

Ans. Collateral-free loans can be termed as unsecured business loans wherein borrowers are not required to submit any security or collateral with the bank or any financial institution to avail business loan.

Q. How much Collateral is needed for a Small Business Loan?

Ans. Generally, small business loans are of lesser amount and do not require collateral. However, the amount of type of collateral depends on the business requirements and respective lender. Collateral also depends on the size and value of the loan.

Q. What types of collateral does the Bank accept?

Ans. Collateral can be of various types like commercial or residential properties, machinery/equipment, raw materials, stocks, inventory, two-wheeler, car, gold, etc. can be deposited as collateral or security with the lender.

Q. I’m going to start my own business. Is there any government scheme for start-up business loan?

Ans. Yes, there are government schemes for Start-Up businesses, such as MUDRA scheme, Stand-Up India Scheme, Credit Guarantee Scheme (CGS), Coir Udyami Yojana, Market Development Assistance Scheme for MSMEs, Bank Credit facilitation scheme, NABARD scheme, etc.