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How to Get a Startup Business Loan without Collateral?

  • 04-Apr-2022
How to Get a Startup Business Loan without Collateral?

We can see many good business plans are being dropped due to a lack of funds. You can search for such sources that grant business loan in India. Usually, financial institutions ask for at least 3 years of business vintage period, but some government loan schemes offer business loans for startup businesses that too without collateral security.   

A startup business loan without collateral allows the early-stage business owner to obtain business finance without requiring to submit any collateral with the bank. Unsecured business loans are backed by most financial institutions and are also known as collateral-free loans.   

The biggest concern of start-up entrepreneurs is whether to provide collateral or not. Unsecured business loans make entrepreneurs to run their businesses without worrying about providing any collateral or security. The Indian Government has taken numerous initiatives to provide financial support and promote startups business and small-scale industries. However, they have launched various loan schemes for start-ups where there is no need to pledge collateral or security.  

Government Loan Schemes for Startups in India- 2022  

Here are some of the popular government loan schemes that help in getting a business loan for startups as follows:  

1. MUDRA Loan under PMMY  

MUDRA loan aims to “fund the unfunded”. Micro Units Development and Refinancing Agency (MUDRA) grants loans to micro units and non-cooperative small business under the Mudra scheme customers can avail loan that doesn’t need any collateral security. However, the mudra scheme is classified into three categories as given below:  

  • Shishu Loan- Under this scheme, entrepreneurs can avail loans up to Rs.50,000 for a maximum of 5 years repayment period.
  • Kishor Loan- Loan offered from the loan amount of Rs.50,000 to Rs.5 lakhs.
  • Tarun Loan- Loan amount ranges from Rs. 5 lakhs to Rs.10 lakh.

2. Stand-up India Scheme  

Standup India is one of the government schemes which aims to financially support SC/ST and women entrepreneurs in setting up greenfield enterprises. Bank facilitates loan under this scheme that ranges from Rs. 10 lakhs to Rs. 1 Crore to at least 1 SC/ST, women borrower for setting up enterprises either in manufacturing, services or trading sectors.   

3. CGTMSE Scheme  

Credit Guarantee Fund Trust for Micro and Small Enterprises CGTMSE scheme was launched by the government of India, and most of the new and existing enterprises were covered under this scheme. The loan amount given to any borrower is decided by the lender based on the eligibility and financial viability of the business. The maximum limit of the loan under this scheme is Rs.1 Crore. Also, you can avail of collateral-free loans. Micro and small enterprises engaged in manufacturing units can easily get loans under this scheme.  

4. Bank Credit Facilitation Scheme  

In collaboration with public and private sector banks, National small industries corporation (NSIC) provides loan facilities to registered MSMEs in India.  The repayment tenure of the loan depends on the income generated. Usually, it varies from 5 to 7 years and can goes up to 11 years in exceptional circumstances.  

5. Coir Udyami Yojana  

This scheme was initiated by the Coir Board and its main motto is to set up coir units across India. It only grants loan to project-based enterprises with a project cost up to 10 lakh. The coir board has set a limit that should not exceed 25% of project cost. The capital expenditure is financed in the form of a term loan or working capital through a cash credit facility.  

Eligibility Criteria for Startup loans without collateral  

  • Age of the applicant should in-between 22 – 60 years
  • An applicant with no default in previous with any financial institution
  • Business Vintage- At least 3 years of business existence in the market
  • Must carry out a solid business plan with innovative products or services ideas by the firm
  • The firm should get a patron guarantee offered by the patent and trademark office

Document Required  

  • Duly filled application form with passport-sized photographs
  • KYC documents such as PAN Card, Aadhar Card, Passport, Voter ID, Driving License and Utility Bill
  • Business Registration Certificate
  • Registration Certificate of Patent
  • Any other specific documents required by lenders

How to apply for Collateral-free Business Loans for Startups?  

To avail collateral-free business loan, an applicant can visit financeseva.com to compare various lender offerings to choose the best loan deal options.  Unsecured business loans are the only option wherein collateral is not required.   

Also Read: MSME Loan for New Business - Check Eligibility & Interest Rate

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