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Understanding Collateral-Free Business Loans for Startups in India

Starting a business and securing a loan can be a challenging process, especially when it comes to providing collateral or security. However, with collateral-free loans, entrepreneurs can now obtain funding without putting their assets at risk. An unsecured business loan, for amounts up to Rs. 2 crore, does not require any collateral or security. This makes it easier for entrepreneurs to focus on managing their business rather than worrying about asset loss.

On the other hand, a secured business loan requires collateral in the form of assets such as property, equipment, raw materials, and more. While this can offer a larger loan amount, it also poses a greater risk for entrepreneurs.

With the Indian government’s initiatives to promote small scale industries and startups, various loan schemes have been introduced that do not require any collateral or security. These collateral-free loans help to facilitate the growth of startups and provide a much-needed boost to the Indian economy.

5 Best Loan Schemes Initiated by the Indian Government for Startups and MSMEs

MUDRA Loan – An initiative to support small businesses

MUDRA (Micro Units Development and Refinance Agency) loan is an initiative launched by the Indian government to support micro-units and non-corporate small businesses by providing them with adequate funds. The primary goal of this loan scheme is to “Fund the Unfunded.”

To make it easier for people to access funds, banks offer collateral-free loans under the MUDRA scheme as per the customer’s requirements. The MUDRA loan is classified into three categories: Shishu, Kishor, and Tarun, based on the stage of the business and the funding needs of the beneficiary.

Shishu Loan is aimed at providing loans up to Rs. 50,000 for business start-ups. Kishor and Tarun schemes are designed to cater to the funding needs of small businesses at different stages of growth. Under the Kishor scheme, loans ranging from Rs. 50,000 to Rs. 5 lakh are offered, while the Tarun scheme provides loans up to Rs. 10 lakh.

Overall, MUDRA loan is a great way to help small businesses achieve their goals and contribute to the growth of the economy.

Stand-Up India Schem

Stand-Up India Scheme, which is a government initiative aimed at empowering SC/ST and women entrepreneurs financially. The scheme offers loans from Rs. 10 lakh to Rs. 1 crore to at least one woman or SC/ST borrower who wants to start a business in the manufacturing, service, or trading sectors. The loan tenure is up to 7 years, which is a long time for the borrower to repay the loan. This initiative is focused on promoting women entrepreneurs among scheduled caste and scheduled tribes, encouraging them to start their own businesses and contribute to the growth of the Indian economy.

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

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a scheme launched by the Government of India to help small businesses. Whether you’re starting a new business or already have one, you can benefit from this scheme. The loan amount you can receive depends on your business’s eligibility and viability. The best part is that you can get a maximum loan of up to Rs. 1 crore without having to provide collateral. This scheme is available to all scheduled commercial banks, public and private sector banks, foreign banks, and select Regional Rural Banks (RRBs) under the category of the National Bank for Agriculture and Rural Development (NABARD). So, if you’re a small business owner looking for financial assistance, this scheme could be a great option for you.

The Market Development Assistance Scheme

The Market Development Assistance Scheme is designed to help Micro, Small, and Medium Enterprises (MSMEs) gain exposure and strengthen their businesses. This scheme offers funding for various purposes, such as participating in international exhibitions, study tours abroad, and trade fairs under the MSME India kiosk. It also provides funding for producing publicity material, sector-specific studies, and contesting anti-dumping cases for individual MSMEs and associations.

Under this scheme, registered small and micro manufacturing enterprises can participate in international exhibitions and fairs with financial assistance up to 75% of to-and-fro airfare. The scheme also offers financial assistance for using Global Standards (GS1) in barcoding, which is important for businesses. To avail this financial assistance, businesses can approach the Office of the DC (MSME).

The Coir Udyami Yojana

The Coir Udyami Yojana is a scheme led by the Coir board to promote the establishment of coir units all over India. Under this scheme, the project cost of up to 10 lakh is funded, along with one cycle of working capital. However, 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.

Some highlights of this scheme include that the beneficiary has to contribute 5% of the project cost, the bank credit rate is 55%, the rate of subsidy is 40% of the project, and the repayment tenure is up to 7 years. This scheme aims to provide support to entrepreneurs who want to set up coir-based businesses and promote the growth of the coir industry in India.

What is the required documents forCollateral free start up loan Application?

Application Form: A duly filled application form with passport-sized photographs.

KYC Documents:PAN card, Aadhar card, Driving License, Passport, Voter ID card, and Utility Bills are required as KYC documents of the applicant.

Business Registration Certificate: A certificate of business registration is needed to prove that the business is legally registered and recognized by the government.

Additional Documents: Other documents required by financial institutions or lenders, whichmay vary based on the type of loan and the lender’s policies.

What is the eligibility criteria for Startup Loans without Collateral?

  • Business Vintage: The business should not be older than 5 years.
  • Innovative Products: The firm should provide innovative products or services.
  • Approval from DIPP: The firm should have approval from the Department of Industrial Policy and Promotion (DIPP).
  • Patent and Trademark Guarantee: The firm must have a patron guarantee from the Indian Patent and Trademark Office.
  • No Previous Defaults: The applicant should not have any previous defaults with any financial institution.

Applying for Collateral-free Business Loans for Startups:

If you’re looking for a business loan without collateral, you can search for unsecured business loans provided by different lenders. These loans don’t require you to provide any collateral.

Keep in mind that other types of business loans do require collateral, so be sure to look for unsecured business loans specifically if you want to avoid providing collateral.

FAQs

I want to start my own business. Is there any help from the government in the form of a loan?

Yes, the government has several schemes that offer start-up business loans. These include schemes like MUDRA, Stand-Up India, Credit Guarantee Scheme (CGS), Coir Udyami Yojana, Market Development Assistance Scheme for MSMEs, Bank Credit Facilitation Scheme, NABARD Scheme, and more. You can explore these options to see which one suits your business needs.

What can be given as collateral for a loan from a bank or NBFC?

When you apply for a loan, the bank or NBFC may ask for collateral or security. Collateral refers to any valuable asset that you pledge to the lender as security for the loan. Different types of collateral can be accepted, such as commercial or residential properties, machinery or equipment, raw materials, stocks or inventory, two-wheelers or cars, and even gold. It depends on the specific requirements of the lender, and they will inform you about the collateral they accept.

Do I need to provide collateral for a small business loan and if so, how much?

Small business loans are generally offered without the need for collateral. However, the amount and type of collateral required may vary depending on the lender and the specific needs of the business. In some cases, lenders may require collateral depending on the size and value of the loan.

What are collateral-free loans?

Collateral-free loans are loans that do not require the borrower to provide any security or collateral to the bank or any financial institution. They are also known as unsecured business loans.

Are there loans available without requiring collateral?

Yes, there are loans available that don’t require collateral, called unsecured personal loans. These loans are offered based on your income, cash flow, and stability of your business or employment. At Refer Loan, we can help you find the best loan options with easy-to-pay interest rates.

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