Considering the volatile conditions of the market and continuously changing business environment, managing businesses, especially new ones, are quite challenging. Many MSMEs or SMEs are taking business loans to boost their businesses. Although, opting for a secured business loan enables borrowers to risk their high-value assets as collateral. On the other hand, entrepreneurs can go for unsecured MSME collateral free loans and take their establishments to another level.
MSME full form stands for Micro, small, and medium enterprises. It also contributes over 40% of the gross domestic product growth in India. But before jumping into the application process, prospective MSME loan borrowers must learn about the intricacies to avoid rejection. Read on to know about it in detail.
Features of collateral free loans for MSMEs
A collateral free loan for MSMEs or SMEs is primarily an unsecured credit facility that does not involve pledging assets to raise funds. Borrowers can avail funds without providing any security, which is why the risk is always higher than the secured ones.
Nonetheless, here are some of the features of collateral free loans for MSME:
No end-use restriction
The funds obtained from such a financing option can be utilized to meet different financial requirements without any stress. Borrowers can use funds to meet working capital needs, finance a child’s education, expand a business, etc.
Flexible repayment terms
Usually, collateral free MSME loans come with an extended repayment tenor of 84 months. One can choose an extended tenor to make EMIs affordable; however, the interest component will be higher. In this regard, borrowers can use a business loan EMI calculator to compute EMIs beforehand and assess their repayment capabilities.
Easy and flexible application process
Such financing options can be applied either manually or through reliable digital platforms. The loan processing does not take much time and can be approved without extensive documentation. Apart from these, borrowers need to learn about the basic requirements to get a business loan.
Eligibility and documentation of collateral free loans
Like other credit facility, such a financing option comes with flexible eligibility parameters and minimal documentation. Although these factors differ across lenders, the basic requirements remain similar. This is one of the important checklists to follow before applying for a business loan to ensure hassle-free loan approval.
Here are some of the basic qualifying parameters that borrowers need to meet when applying for a business loan:
- Must be an Indian resident
- Applicant’s age should be within 24-70 years
- Must have a business vintage of 3 years
- CIBIL score must be 685 or above
Apart from these, borrowers need to submit the following documents:
- KYC documents
- Business ownership proof
- Financial documents
Borrowers may also need to provide recent financial statements when applying for the loan. After verification, it takes around 24 hours* to get the amount transferred to a borrower’s account.
Apart from these, all MSMEs need to provide information to the Government about their mergers and acquisitions through the MSME databank. This information will allow the Government to supervise different loan schemes and policies for MSMEs.
Furthermore, collateral free loans from leading financial institutions like Bajaj Finserv come with pre-approved offers on a range of financing options, such as personal loans, business loans, credit cards, etc. These offers significantly reduce the hassle of lengthy documentation and accelerate loaning process. Existing borrowers can check their pre-approved offers by mentioning their names and contact details.
Therefore, if prospective borrowers want to scale up their businesses, there is no better alternative than MSME loans. However, borrowers must always compare lenders and loan terms to make an informed decision.