Small businesses and startups generally require financial assistance to keep running and functioning, especially in the beginning when the need for cash is high. In either case, securing a small Business Loan with low-interest rates becomes a viable option.

However, they usually need collateral to get the loan approved, which increases the risk factor associated with loan repayment conditions.

To avoid such risks and get an easy loan at an affordable interest rate, a Business Loan without collateral becomes the safest and the most practical alternative for small businesses.

Let’s explore more about Small Business Loans, collaterals, and steps to get small Business Loans without collateral.

What are Small Business Loans?

Small Business Loans are given by banks and financial institutions to startups and small businesses to provide them with financial assistance. Such loans are sought by applying for Business Loans to fulfill urgent business requirements. These loans can be easily obtained with minimum documentation and fulfillment of the eligibility criteria.

What is Collateral?

Collateral is an asset, property, or security used to secure a loan. Banks or lending institutions ask for collateral while approving a loan to guarantee its successful repayment.If someone fails to repay the loan, the lender can seize the collateral and sell or auction it to recover the amount.

However, small business owners can access various safe and reliable non-collateral loan alternatives by knowing the proper steps, eligibility, and strategy.

The points mentioned below would help entrepreneurs secure the needed financial aid for their budding businesses:

Four Steps to Get a Small Business Loan Without Collateral:

1. Know about the viable option for getting a Business Loan without collateral

The first step is to become aware of all the loans and schemes through which you can acquire a Business Loan without collateral to meet your requirements. Several schemes are run by the government and private banks that provide small Business Loans on convenient repayment terms. These are some of the most viable non-collateral loan options:

• Mudra Loans offered under Pradhan Mantri Mudra Yojana

Micro Units Development and Refinance Agency (MUDRA) loans aim at rendering funds to non-corporate small businesses. Under this scheme, banks provide non-collateral loans according to the requirements. MUDRA loans are provided under three categories, Shishu, Kishor, and Tarun. Shishu loans offer funds up to Rs 50,000, Kishor from Rs 50,000 to Rs 5 lakh, and Tarun up to Rs 10 lakh, depending on the size and requirement of a business.

• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

The maximum amount provided under this scheme is Rs 2 crore based on eligibility and viability. This loan is suitable for both new and existing businesses. It is one of the best non-collateral loan alternatives for small businesses.

• Stand-Up India Scheme

Stand-Up India Scheme is specially curated for women and people belonging to the Scheduled Caste and Scheduled Tribe. The loan amount provided under this

scheme is between Rs 10 lakh to Rs 1 crore for a tenure of 7 years for running or setting up a business in the field of manufacturing or trading.

• Non-collateral loans provided by private banks

Non-collateral loans can also be obtained from private banks and institutions. Perspective borrowers need to start by applying online for Business Loans. The banks may impose a higher interest rate to reduce the risk associated with repayment.

2. Analyse your eligibility for getting a non-collateral Business Loan

There are certain eligibility conditions that an individual needs to fulfill to avail of these non-collateral loans and their benefits.

3. Ensure the availability of all the documents required to get a non-collateral loan for your small business

Before applying for a loan, make sure to have all the necessary documents and paperwork ready to avoid any delay or any possible obstructions in loan approval due to document insufficiency. These are some of the prerequisites needed for getting a loan:

• A recent passport-sized photo attached with a duly filled application form
• KYC documents of the applicant like PAN card, Aadhaar card, Driving license, Voter ID, Passport, and Utility bills
• Business Registration Certificate
• Any other documents required by the government or non-government banks and financial institutions

4. Consider all aspects carefully before obtaining the loan and signing the loan agreement

It is always advisable to analyse all the aspects carefully to ensure that a particular loan is beneficial and payable by you before signing the loan agreement. Being ignorant can land you in financial and legal trouble.

Finally, considering how small businesses are taking giant strides towards growth, ICICI Bank has launched the Insta OD Plus Overdraft facility, that can be availed online without any paperwork. The facility allows existing ICICI Bank current account customers to avail an instant overdraft limit of up to Rs 50 lakh and non- ICICI Bank current account customers to avail an instant overdraft limit of up to Rs 25 lakh.

Conclusion

No-collateral loans are undoubtedly meant for budding or small businesses. Still, it requires detailed knowledge and careful consideration of all the necessary information before you leverage the optimum benefits of such schemes and loans.