How to Easily Get a Business Loan Without Collateral

Every business owner needs capital to grow, expand, and innovate. However, whenever you go to a bank or financial institution, they first ask for collateral security, which can be a significant hindrance for many entrepreneurs. Fortunately, today, you can get a business loan without collateral easily and with just a few clicks.

Here are some easiest ways to get an MSME loan without any collateral security. You just need to check the right boxes, and you can easily get a collateral-free business loan.

What do you understand by a collateral-free business loan?

Most traditional lenders, like banks, ask for collateral, such as inventory, property, gold, or equipment, to minimise risk. However, most start-ups or small business owners do not have the liberty of easily providing collateral since they have limited assets.

Due to this challenge, they are compelled to depend on their savings, credit cards, or high-interest personal loans, which can hamper progress and escalate their financial risk. New business loans without security provide an easy solution, allowing business owners to access funds without putting their possessions at risk.

A collateral-free or unsecured commercial loan does not entail applicants keeping their assets, such as inventory, equipment, property, or other securities, to obtain funding. These loans are provided based on the character, capacity, cash flow, conditions, creditworthiness, and commercial performance of the applicant.

Eligibility requirements for a business loan without collateral

Firstly, you need to evaluate your eligibility for getting a collateral-free loan. The eligibility requirements vary according to lenders; however, some general requirements are the same, such as —

Credit score:

Your credit score replicates your credit history and your credit habits. The most popular credit rating agencies are CIBIL, Experian, and Crif High Mark. Most lenders require a good credit score. An ideal credit score is above 750. If your credit score is below 750, it does not mean that you will not be able to secure a loan; however, since it is riskier, the terms and conditions will vary, and you might be charged a higher rate of interest on the same loan.

Business age:

Most traditional lenders look for a minimum business age of one to two years. Having an operational business for 3 years is ideal before most lenders would be willing to sanction an unsecured business loan. However, many schemes and options are available for business owners and start-ups who have just begun their operations and need capital to expand their entrepreneurial ventures.

Revenue and annual turnover:

The revenue you generate during the whole financial year is your annual turnover. It plays a deciding factor in the quantum of loans sanctioned by banks and other financial institutions. It is crucial to have a consistent and steadily increasing turnover as well as profitability. The higher the revenue, the higher the quantum of loans, and vice versa.

You must confirm your business has a steady cash flow from operations to meet the repayment plan. Unsecured loans usually have higher interest rates compared to secured loans, starting from 10% and going up as high as 24% per annum.

KYC documents:

You need to have your credentials and documents ready for securing a business loan. You need to have the following documents to get your loan sanctioned —

• Personal Identification Documents, such as PAN Card, Aadhaar Card
• Address Proof, such as an Aadhaar Card or Electricity Bill
• Business Proof, such as UDYAM Aadhaar Registration
• Business Registration Documents such as GST Registration
• All the Licenses Required for Your Business
• Income Tax Returns
• Project Reports
• Bank Statements ( 6-12 months)
• Financial Statements (Profit & Loss, Balance Sheet)

All the lenders are under the purview of RBI to strictly follow the “Know Your Customer (KYC)” Norms that include establishing the identity of the individual as well as the business.

Choose the right lender for your MSME business collateral-free loan:

You can choose to apply for a loan from Banks, Non-Banking Financial Companies (NBFCs) and  Fintech Lenders that provide speedy access to funds without collateral.

Conclusion

Getting a business loan without collateral is a prudent choice for entrepreneurs who lack substantial assets but have robust business potential. Remember to always evaluate loan terms sensibly before making a decision. 

At TallyCapital, we identify that every business is unique, with its own set of challenges and opportunities. Thus, we are committed to providing you with modified business loans that cater to your specific needs. Our objective is to help you achieve your business goals, not to burden you with complicated loan structures.