Saturday, July 2 2022

What if you cannot provide collateral as collateral to qualify for loans from banks? Several financial institutions provide small business loans and other forms of credit without any collateral.

If you’re running a successful business, you may need a bigger injection of capital. At such times, you will depend on bank loans and other forms of credit to meet financial needs. What if you cannot provide collateral as collateral to qualify for loans from banks? Several financial institutions offer small business loans and other forms of credit without any collateral. But, you must remember that unsecured loans are best suited for short-term loans that you intend to repay at the earliest. This is because the loan amount is lower and the interest rate would be high for unsecured loans.

Now take a look at the financing options available to you.

  1. Indian Government Sponsored Credit Schemes

The Indian government has launched various credit schemes which provide collateral free loans to eligible and capable businessmen. Some of these credit schemes can provide loan amounts of up to Rs. 1 crore as business loans without any collateral. They are:

  • Loan MUDRA from Pradhan Mantri Mudra Yojana – Loan amounts from Rs. 50000 to Rs. 10 lakh can be availed using this scheme.
  • Credit Guarantee Trust Fund for Micro and Small Enterprises (CGTMSE) – A maximum of Rs. 1 crore can be used by new and existing businesses.
  • NABARD- Small industries in rural areas and start-up business loans are eligible for loans under this scheme.
  • Bank Credit Facilitation Program – MSMEs can obtain loans to develop their businesses through this program.
  • Coir Udyami Yojana Program – Up to Rs. 10 lakh can be used as a loan to set up coco units across India.
  • Standup India Program – Under this scheme, SC/ST and female entrepreneurs can apply for loans from Rs. 10 lakh to Rs. 1 crore.
  1. Bank line of credit

Many banking and non-banking institutions offer financial assistance in the form of a line of credit. In case your startup encounters financial management difficulties, this facility is useful. This line of credit is totally discretionary and totally depends on your relationship with the bank. Rather than taking the full amount offered by a loan program, you can only take the loan amount that is currently needed for your business. So, instead of charging the entire loan, the bank will only charge the interest on the amount of the loan used in the business.

  1. Small Business Credit Cards

Various financial institutions offer credit cards that can act as a small business loan. If you have a good CIBIL score, you can apply for business credit cards. They ask very little professional loan file compared to others. These credit cards can be used as a good backup for your expenses. These cards have unique features that can help lower your costs. You can save a lot of money which can be used later in expanding the business.

  1. Equipment financing

If you are looking for loans to purchase machinery or equipment for your business, this loan is right for you. Without paying the full amount, you can use the machinery or equipment financing to set up the necessary equipment and start manufacturing the products. Until the loan is repaid, the machines purchased serve as collateral. So, you don’t have to submit collateral separately to get this loan. You can clear the machinery debt once the business starts generating profits. You can get this facility if you have a good relationship with the lender.

  1. External funding

If your business is a startup with an innovative idea, there are private lenders and business people who can lend money or finance your business. If your idea is unique, you can apply for loans from these private lenders. The interest rate may be high in this case, but they will not ask for the period of activity or the guarantees. The need for business loan documents will be much less complicated here. It can also serve as a start-up business loan.

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