How to Secure MSME Loan Without Collateral

How to Secure MSME Loan Without Collateral

One of our customers wants to take a business loan. Then we suggest an MSME Loan. However, he does not about MSME (Micro Small Medium Enterprise) loans. So, we discuss how to secure an MSME loan without collateral, and the same discussion we are going to tell you.

What is an MSME Loan?

MSME loans are especially available for entrepreneurs.  Micro, Small, and Medium Enterprise business owners obtain unsecured loans to expand their business, buy equipment, pay salaries, etc. The Indian government and RBI clearly explain the MSME business loan categories:

Manufacture and Service SectorInvestment within Rs. 1 croreInvestment within Rs. 10 croreInvestment within Rs. 20 crore
Annual Turnover does not exceed Rs. 50 croreAnnual Turnover does not exceed Rs. 100 croreAnnual Turnover not exceed Rs. 100 crore

You should define your business loan categories such as Micro, Small, and Medium. Banks offer up to Rs. 2 crore with repayment terms 1 to 5 years. This loan is 100% collateral-free.

5 Routes to Get MSME Loan Without Collateral

1. CGTMSE Schemes

Easy to obtain MSME loans through government schemes. Indian governments support different schemes for business owners to take MSME loans. CGTMSE is a popular scheme that provides working capital loans up to Rs. 10 lakh without collateral.

The credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme covers up to 75% of loans for men and 80% of loans for women.  The interest rate is nearly 7.5% with 10 years repayment term.

2. MSME loans in 59 minutes

Obtain unsecured business loans up to Rs. 5 crore from MSME loans in 59 minutes which is an online portal of the government. This portal provides instant business loans that join with different banks. This is set automated algorithm that analyzes and shows the loan offer.

Borrow a loan starting with 8.5% ROI (rate of interest). The repayment tenure is 12 to 60 months. Generate loan approval time is 59 minutes.

3. Pradhan Mantri MUDRA Yojana

Borrow pradhan mantra MUDRA (Micro Units Development and Refinance Agency) yojana loan that offers unsecured MSME loan. MUDRA loans are divided into 3 categories such as Shishu loan which offers up to Rs. 50,000 loan, Kishor loan which provides Rs. 50,001 to 5 lakh loan, and Tarun loan which starts with Rs. 5,00,001 to 10 lakh loan.

MUDRA yojana loan tenures begin from 1 to 5 years. Interest rates will vary from bank to bank. Also, it will depend on your business requirement profile.

4. Stand-Up India Scheme

Stand-Up India scheme helps to grow women’s entrepreneurship and those who fall under Scheduled Castes (SC) or Scheduled Tribes (ST). This scheme is a collateral-free loan that offers up to Rs. 1 crore loan at lower interest rate.

You may borrow a loan for business-related equipment, manufacturing, service-related costs, etc. Stand-Up India scheme gives a maximum 7 years loan repayment term.

5. Explore Non-Banking Financial Companies (NBFCs)

Non-banking Financial Companies (NBFCs) provide the fastest MSME loans without collateral. NBFCs like Hero Fincorp, Lendingkart, Aditya Birla, IIFL, and Tata Capital give quick loans for business funding at minimal document criteria. Borrowers will enjoy a hassle-free loan journey at 5 years loan tenure.

The loan process is much more simple. Also, customize your loan approval amount as per NBFC guidelines.

Top Lenders Offer MSME Loan in India

LendersInterest Rate
Central Bank of India9.90% p.a. onwards
Punjab and Sind Bank9.30% p.a. onwards
UCO Bank8.85% p.a. onwards
LendingKart1.25% per month
SFMG India CreditUp to 21% p.a.
Mahindra Finance7.75% p.a. onwards

Eligibility Criteria for MSME Loan

Individuals take MSME loans with complete following eligibility criteria:

  • Residence should be in an Indian Region
  • Complete Age: 21 years to 60 years
  • Business must fall under sole proprietorship, partnership firm, company, or Limited liability partnership.
  • Credit score should be decent for loan eligibility.
  • Vintage proof documents must be required.

Also Read: Faircent Business Loan

Advantages of Collateral-free MSME Loan

Simple Criteria: Taking an MSME loan is a simple eligibility criterion. Only business-related documents are convenient to expand your business.  

Collateral-free: The Micro, Small, and Medium Enterprise loan is an unsecured business loan. So, the Bank does not take any security paper from the borrower. This is one of the biggest benefits of MSME loans.

Flexible Tenure: The repayment term is flexible which will help the borrower. Most Banks provide up to 60 months of helpful loan terms.

Minimal Documents: MSME loan is available for users with a minimal documents list. Business documents and applicant KYC documents are the main required documents.

Build Credit Score: These days credit score is one of the important parts. MSME loan builds your CIBIL score if you pay EMI on a fixed date. It will generate a good credit score after some time.

Frequently Asked Questions

  1. What is the full form of an MSME loan?

    The full form of MSME is a Micro, Small, and Medium Enterprise loan. This loan is helpful for equipment purchase, trading, service, paying salary, buying raw materials, etc.

  2. What is the maximum loan available through an MSME loan?

    Borrow MSME loans up to Rs. 2 crore for your business categories such as Micro, Small, and Medium Enterprises.  

  3. Can I take an MSME loan with a low credit score?

    You may get an MSME loan at a low credit score but the interest rate will be high. Banks like the Central Bank of India, Bank of India, and NBFCs like IIFL, Lendingkart, and Ashv Finance offer MSME loans at low credit scores.

  4. What is the interest rate of an MSME loan?

    The MSME loan interest rate varies from lender to lender. The government bank’s interest rate is 8.85% to 9.90% p.a. But NBFCs offer interest rates of 14% to 21% p.a.

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