Like all businesses, micro-small-and-medium enterprises (MSMEs) need funds and investment to expand their businesses and grow. To encourage MSMEs, the Indian Government and other financial institutions such as non-banking finance companies (NBFCs) have launched various schemes that provide a business loan without collateral to Indian MSMEs.

The eligibility requirements for a business loan without collateral from an NBFC (Non-Banking Financial Company) are less stringent than those from a traditional bank. Only those businesses that are deemed risk-free and credit-worthy are given preference when applying for a traditional business loan. This is why business loans without collateral from an NBFC are preferred by small business owners, they have fewer eligibility requirements and provide more benefits.

Why is it difficult for MSMEs to avail of loans?

MSMEs have identified significant difficulties in securing financing.

• The lack of collateral or guarantee to pledge against a loan
• Long waiting periods while loan applications are processed
• The lack of information about available schemes and loan products
• Procedural issues which become hurdles
• High loan service fees are also a concern for businesses
• High volume of paperwork makes it difficult for small business owners to apply

When small business owners apply for a business loan, they usually receive a negative response. There are a lot of papers to submit, and the approval process takes a long time. There is also the possibility of rejection due to the lack of property that can be pledged as a security.
Traditional lenders usually demand property collateral against loans because they are risk averse, and don’t want to take a chance by lending to small businesses. NBFCs like Kinara Capital have found ways to circumvent this and provide collateral-free loans.
These loans can be issued even to those small business entrepreneurs who have no property collateral, and therefore drive financial inclusion.

Documents required for a business loan without collateral

The document requirements vary depending on the lender. Certain NBFCs, like Kinara Capital, offer more flexibility.

• KYC (personal): Aadhaar, PAN, Voter ID, driving license or passport.
• Address proof: Service bills such as power bills, water bills or rental agreements.
• Finance proof: GST certificate and filings, profit and loss accounts, banking statements or copies of passbooks over the last two years.
• Company-related documents: Certificates of firm registration (Udyam Registration), Company PAN, technical certificates in the case of self-employed practitioners, proof of business turnover for sole proprietors, relationship agreements for business partners, and, where applicable, the Memorandum of Partnerships.
  
  

Types of business loans without collateral

Working capital

A business owner can use working capital to fund day-to-day business operations. This type of loan offers flexibility and can be used for a wide range of expenses such as paying wages, purchasing inventory and raw materials, repairing machinery, renovating the business premises, starting to produce or sell a new product, and many more.

Asset purchase

This type of loan can be used to purchase a machine which will enable business owners to start a new line of products, increase efficiency and quality of manufacturing and expand their existing product lines. Often MSMEs lack the capital or liquidity needed to buy a machine. This is where an asset purchase loan comes in handy. NBFCs such as Kinara Capital provide the flexibility for MSMEs to even buy second-hand machinery which can save costs.

Your way forward

Reputed NBFC like Kinara Capital offer collateral-free loans to support MSMEs. They are tackling the credit gap that exists for MSMEs in the Manufacturing, Trading and Services sectors with fast and flexible business loans without collateral in the range of INR 1-30 lakhs.

Besides the availability of both digital and doorstep customer service options, small businesses can also enjoy the convenience of Kinara’s fast 24-hour direct disbursements and flexible EMI payment options on 400+ apps, such as Google Pay and PhonePe. Visit their website and check your eligibility in just 1 minute!