MSME loan – Top 5 Ways to Get A Collateral-Free Loan

The MSME sector is an essential part of the Indian Economy. It creates around 1.3 million jobs every year, providing employment to a large part of the population. Aside from that, this sector also contributes significantly to the nation’s GDP.

However, lack of proper financing, one of the most significant challenges faced by this sector, has hindered its growth and expansion. It is also one of the reasons why individuals are reluctant to set up a new business venturing new sectors. 

Consequently, the government of India, in an aim to promote the MSME sector, launched several schemes under which one can avail collateral-free MSME loans easily. These schemes are as follows –

MUDRA

The Government of India launched the Pradhan Mantri Mudra Yojana scheme in 2015in an attempt to provide affordable and collateral-free credit to micro-enterprises and entrepreneurs.

Mudra loans, which can be availed from a financial institution, NBFC or an MFI, can be categorised into three segments based on the funding needs of the beneficiary. These segments are – Shishu, Kishore and Tarun. Shishu offers credits up to Rs.50,000 whereas Kishore provides loans between Rs.50,000 – 5,00,00. Under Tarun, one can avail loans from Rs.5 to 10 lakh.

Credit Guarantee Scheme

Within this scheme, the Government of India, along with SIDBI, created a trust fund known as Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).Existing and new business enterprises can opt for collateral-free MSME loans like term loan or working capital loans of up to Rs.100 lakh per beneficiary. However before availing this loan, one needs to determine how much working capital does their business need and apply accordingly.

Credit Linked Capital Subsidy for technology upgradation

This scheme offers a capital subsidy of 15% on institutional finance of up to Rs.1 crore to micro and small enterprises to enable them to upgrade and install new equipment, plant and machinery. New MSMEs who have installed upgraded machinery approved under scheme guidelines can also avail subsidy on a business loan for MSME under this scheme. However, before opting for such a credit, an entrepreneur or business owner must go through the list of essential technology that every small business needs.

Furthermore, after recent revision of this scheme, a provision was added to provide entrepreneurs from SC/ST categories and North-Eastern states an additional 10% subsidy for technology upgradation.

Marketing assistance Scheme

Some of the main objectives of this scheme are as follows – 

1. To aid MSMEs in improving their marketing capabilities and thereby promoting competitiveness in various sectors.
2. To provide a platform to micro, small and medium scale enterprises where they can showcase their products and services as well as interact with institutional buyer.
3. To inform enterprises in this sector about the current market conditions and how it can impact their business.

Accordingly, this scheme provides Rs.30 lakh per event to beneficiaries for participating in international exhibitions and trade fairs. Up to Rs.15 lakh will be granted for participation in domestic fairs and Rs.45 lakh for organising exhibition or trade fairs.

Stand-up India

This scheme aims to provide MSME loans between Rs 10 lakh to Rs 1 crore to at least one business owner (belonging to the SC/ST category) and one woman entrepreneur per bank branch. However, to avail a loan under this scheme, the business must fall under manufacturing, service, or trading sector. Applicants also need to meet other pre-specified eligibility parameters.

Even though one can easily avail affordable loans under these schemes, the actual loan sanction and disbursal process can take a substantial amount of time and involve a lot of paperwork. Consequently, entrepreneurs and business owners can consider opting for a collateral-free business loan for MSME from an NBFC at affordable interest rates, nominal eligibility criteria and simple documentation.

Moreover, if the borrower satisfies all the parameters, then their application will be sanctioned instantly, and the business loan amount will be disbursed within a few days. NBFCs also provide pre-approved offers to borrowers for a hassle-free loan application process, which also helps save time. Such offers can also be availed on other products like personal loans, credit cards etc. One can check their pre-approved offers online by providing their name and contact information.

Individuals can also opt for customised business loans that fit their unique financial needs. However, they should conduct thorough research and compare the pros and cons before opting for any credit.