Despite their large number, MSMEs in India face a lack of access to adequate and timely credit. The primary reason for financial institutions’ reluctance was their perception of MSMEs as high-risk. Furthermore, MSMEs lack adequate collateral security to secure credit. To compensate, the Indian government has devised several schemes that provide collateral-free loans to MSMEs.

The Ministry of Micro, Small, and Medium Enterprises (MSME) is keen to review and improve the economy of the MSME sector. The Indian government has made it possible for MSMEs to obtain loans without putting up collateral to help this sector grow. Let us look at how to get collateral free loans for MSME.

A small business loan with no collateral

A loan to Micro, Small, and Medium Enterprises (MSME)  without collateral is a small business loan made to a company in the Micro, Small, and Medium Enterprises sector that does not require the company to put up collateral. It is a lax commercial loan.

Advantages of a MSME loan with no collateral

• A MSME loan is a credit that does not require security or collateral.
• It’s an easy way to start or grow a business because it’s easy to qualify for and doesn’t require much paperwork.
• A MSME loan without security can be disbursed quickly and easily.
• These loans provide a great deal of flexibility in terms of repayment terms, interest rates, and loan amounts.
• The loan application process is simple and does not require any paperwork. You can apply for a loan and track its status online.
• If the EMIs are paid on time, it helps the applicant establish a valuable credit history.

Various MSME loan schemes

Loans are made possible by The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) programme.

You can get collateral-free term loans and working capital loans up to Rs 10 lakh through the government initiative of the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme. For a woman there is a guarantee cover of up to 80% of the sanctioned loan amount.  The interest rate begins at 7.5%. The loan can be used to purchase assets such as machinery and equipment. The repayment period is determined by the bank, with a maximum term of ten years.

MUDRA loans

The Micro Units Development and Refinance Agency, or MUDRA, is a government initiative that allows you to get an MSME loan with no collateral for a small non-farming-related business. Working capital loans, term loans, and overdraft facilities are all options. The interest rate will be determined by your profile and business requirements. The repayment period under this scheme is between one and five years. The MSME loan limit with no collateral is separated into three categories under MUDRA:

• Shishu loans up to Rs 50,000, Kishor loans up to Rs 5,00,000 and Tarun loans are made available up to Rs 10,00,000.

Loans from the Stand-Up India Scheme

If you are a woman entrepreneur or a member of a Scheduled Caste or Scheduled Tribe, you may be eligible for Stand-Up India loans. These loans are intended to be used to establish greenfield enterprises in manufacturing, services, trading, or agriculture-related activities and sectors. The loan amount ranges between Rs 10 lakh and Rs 1 crore. The interest rate is 5.5%, with a repayment period of 7 years.

Loans for small businesses in 59 minutes

This scheme provides MSMEs with emergency credit and allows them to apply for loans in minutes through the portal. The CGTMSE scheme offers collateral free loans. The interest rate offered begins at 8.5%. The initial loan amount ranges from Rs 10 lakh to Rs 5 crore. The loan can be used to buy machinery, develop infrastructure, and diversify businesses, among other things. The repayment period ranges from one to fifteen years. The fintech portal connects the applicant with various banks. However, the amount of the loan in principle is up to the lending bank, and there is no credit guarantee.

NBFC Loans without Collateral for MSME

NBFCs can provide you with an MSME loan with no collateral. These loans can be used to increase technology, manpower, infrastructure, working capital, and other resources. MSMEs frequently prefer collateral-free loans from NBFCs due to their lenient eligibility requirements. Furthermore, the documentation required is minimal, and the processing time is short. The fact that you do not have to register for these loans means that they are disbursed quickly. NBFCs may also allow you to structure your repayment around your company’s cash flow. The loan amount varies and may be determined by the size of the business. Loan terms are typically one to three years. Interest rates are also competitive.

Conclusion

Loans for MSMEs without collateral provide numerous benefits to both new and established MSMEs. So, if you need an MSME loan, don’t be concerned about having to provide any security or collateral. You do not have to put up any assets to start or grow a business.