The Ministry of Micro, Small, & Medium Enterprises (M/o MSME) has provided data that there are approximately 6.3 crore MSMEs in the country, contributing 29% to India’s GDP. Therefore, experts suggest that reviving and improving the economy highly depends on the MSME sector. That is why, with the encouragement of the Indian government, there are now various loans for MSMEs without collateral to drive the growth of this sector. So here is a handy guide if you want to know how to secure an MSME no-collateral loan.
What is an MSME Loan Without Collateral?
A loan to MSME without collateral means that a business loan is offered to a business that falls within the Micro, Small, & Medium Enterprises sector, without the business needing to pledge collateral. In other words, it is an unsecured business loan.
Benefits of an MSME loan Without Collateral
The biggest benefit is that MSMEs can get collateral-free credit without providing security or collateral.
Easy eligibility requirements with minimal documentation make it a convenient way to either start or expand your business.
With minimal documentation and no collateral requirement, the disbursement of an MSME loan without security is quick and easy.
Collateral-free MSME loans offer great flexibility regarding repayment tenures, interest rates, and loan amounts.
The paperless and convenient loan application process allows you to apply for the loan online and track your application online.
It helps build a valuable credit history for the applicant so long as you pay the EMIs on time.
Eligibility Criteria
Under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Scheme, eligible borrowers include new and existing micro, small, and medium enterprises engaged in manufacturing activities.
This scheme covers all activities under the service sector as per MSMED Act 2006, excluding-
1. Retail trade
2. Self-help groups
3. Education institutions
4. Training institutions
5. Selected NBFCs
Fees and Charges
Eligible borrowers under the CGTMSE Scheme have to pay a guarantee fee of 1% per annum of the sanctioned loan amount, as follows-
Slab
Standard Rate (p.a.)
0-10 lakhs
0.37%
Above 10 lakhs but up to 50 lakhs
0.55%
Above 50 lakhs but up to 1 crore
0.60%
Above 1 crore but up to 2 crores
1.20%
Above 2 crores but up to 5 crores
1.35%
How to Secure an MSME Loan Without Collateral?
You can secure an MSME no-collateral loan by applying to financial institutions under the following loans or schemes:
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme provides an MSME loan without security up to Rs 10 lakh without the requirement of collateral.
The Pradhan Mantri MUDRA Yojana offers unsecured business loans to MSMEs, individuals, and professionals up to Rs 10 lakh.
The Stand-Up India Scheme facilitates bank loans to at least one woman and at least one Scheduled Tribe (ST), or Scheduled Caste (SC) borrower per bank for setting up greenfield enterprises.
MSME loans in 59 minutes is a scheme where MSMEs can apply for unsecured business loans up to Rs 5 crore through an online portal called PSB Loans in 59 minutes.
Non-banking Financial Companies (NBFCs) offer loans for MSMEs without collateral at competitive terms and conditions and perhaps the quickest turnaround time.
Loans under the CGTMSE scheme
Under the government initiative of the CGTMSE scheme, you get collateral-free term loans and working capital loans up to Rs 10 lakh. There is a guarantee cover of up to 75% of the sanctioned loan amount. If you are a woman or based in the North-East region of India, the coverage goes up to 80%. The interest rate starts from 7.5%. The loan can be used to purchase assets such as machinery and equipment. The bank decides the repayment tenure, subject to a maximum term of 10 years.
MUDRA loans
Micro Units Development and Refinance Agency or MUDRA is a government initiative where you can get an MSME loan without security for a small non-farming related business. The types of loans available as working capital loans, term loans, and overdraft facilities. The interest rate will be dependent on your profile and business requirements. The repayment tenure under the MUDRA scheme ranges from one to five years. Under MUDRA, the MSME loan limit without collateral is categorised under three headings as follows:
Shishu – loans up to Rs 50,000 ideally for start-ups
Kishor – loans starting from Rs 50,001 to Rs 5,00,000
Tarun – loans starting from 5,00,001 to Rs 10,00,000
Stand-Up India Scheme loans
If you are a woman entrepreneur or belong to a Scheduled Caste Scheduled Tribe, you may be eligible for Stand-Up India loans. These loans are to be used for setting up greenfield enterprises in manufacturing, services, trading, or agri-allied activities and sectors. The loan amount available is between Rs 10 lakh and Rs 1 crore. The interest rate is 5.5%, with a repayment tenure of 7 years.
MSME loans in 59 minutes
This scheme offers emergency credit to MSMEs, allowing MSMEs to apply for loans in minutes under the portal. Collateral-free loans are provided under the CGTMSE scheme. The interest rate offered starts from 8.5%. The in-principle loan amount ranges from Rs 10 lakh to Rs 5 crore. The loan can purchase machinery, infrastructure development, business diversification, and more. The repayment tenure goes from 1 year to 15 years.
The fintech portal links the applicant with various banks. However, the in-principle amount is subject to approval by the lending bank and is no credit guarantee.
NBFC loans for MSME without collateral
NBFCs can provide you with an MSME loan without security. These loans can be used to expand technology, manpower, infrastructure, working capital, and more. MSMEs often prefer collateral-free loans from NBFCs as their eligibility requirements are pretty lenient. Moreover, the documentation required is minimal, and the processing time is quick. An advantage of these loans is that you do not need to register under any scheme to avail of them, so disbursal is fast. NBFCs may also allow you to structure your repayment around your business’s cash flow. The loan amount varies and may depend on the business’s size. Loan tenures usually range from one year to three years. Interest rates are also competitive.
Wrapping up
Loans for MSMEs without collateral offer many benefits to start-ups and established MSMEs. So, if you require an MSME loan, don’t worry about needing to provide any security or collateral. You can establish your start-up or expand your business without needing to pledge your assets. If you need a quick and convenient business loan, you can avail of a collateral-free MSME loan from Tata Capital.
Yes, businesses within the Micro, Small, and Medium Enterprises sector can get an MSME loan without pledging collateral under various government schemes.
How much of a loan can I take without collateral?
The unsecured loan amount you can avail yourself of as an MSME depends on the government scheme you’re applying for. For instance, under the Credit Guarantee Trust Fund for Micro and Small Enterprises (CGTMSE) scheme, MSME businesses can get an unsecured loan of up to Rs. 10 lakhs.
What is the maximum amount for a collateral-free loan?
The maximum amount of collateral-free loan you are eligible for depends on the MSME loan scheme you’re applying for. For instance, under the MSME loans in 59 minutes scheme, eligible businesses can apply for an unsecured business loan of up to Rs. 5 crores. Please check the relevant product page for relevant information.
20 December 2024
7 mins read
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