The MSME sector in India is considered a growth accelerator of the country’s economy, contributing to about 30% of its GDP. MSMEs also play a significant role in employment generation as they employ around 110 million individuals across the country.
According to a recent report, more than 80% of MSMEs in India are underfunded and seek financial help from informal sources. Every business has its unique financial requirements, and the capital amount may vary.
Nonetheless, several financial institutions in India are providing business loan without collateral to help meet variegated requirements. These small business credits essentially help to fund expenses such as working capital requirements, supply cash flow, purchasing new or expensive equipment, hiring new staff, etc.
Moreover, since this is an unsecured loan, financial lenders do not require any asset as security. To make the most of this credit option, business owners should note these four points before applying for this credit to enjoy fast approval.
- Application procedure for an MSME loan
Since borrowers do not have to pledge any property as a security, this funding option is viable for many. To know how to apply for a business loan without collateral extended by reputed financial institutions, business owners need to follow a few steps –
Step 1: Visit the lender’s website and navigate to the loan’s online application form.
Step 2: Fill in the relevant details and submit them.
Step 3: Submit the required essential documents and wait for the representative’s confirmation.
After verifying the documents, a small business loan will be disbursed directly to the account within 24 hours.
2. Qualifying criteria
- Firstly, the business entity must come under the MSME definition. The credit score of the business owner should be above 750.
- An applicant should be a resident of India and aged between 25-65 years.
- The business enterprise should have a continuity of 3 years.
- The applicant should have filed the income tax return for the business for at least 1 year.
These are some of the basic eligibility requirements to get a small business loan set by financial institutions.
3. Necessary documentation
To avail of a business loan without collateral, individuals need to submit few necessary documents –
- As per RBI guidelines, applicants need to submit their KYC documents to prove their identity and address.
- Borrowers need to submit their financial documents such as income tax return file, account statement, profit and loss statement, etc.
- The last and vital document is the submission of business ownership proof to validate the business’s registration date.
These loans can be availed by self-employed professionals, non-professionals, traders, retailers and more if they comply with the eligibility parameters and submit essential documents.
4. Credit score
A borrower’s credit score is determined based on his/her payment history. The financial lenders thoroughly check all previous payments made – whether credit card bills or monthly EMIs. Late payment and defaults can have a negative impact on the credit score.
A business owner needs to keep a constant check on the credit score. Apart from this, they should also make sure that all the reports display accurate information about the enterprise to maintain a high credit score. Achieving an excellent credit score takes time, and borrowers need to keep their finances under check to maintain them. That’s why all business owners need to know about CIBIL score and how it affects the business.
Further, to make the loan easily available, reputed financial institutions like Bajaj Finserv extend lucrative benefits like pre-approved offers to the existing customers. One can avail of these offers on financial products such as personal loans, business loans, etc. To check the pre-approved offer, one needs to submit essential details like name and contact number.
While business loans without collateral are beneficial in many ways, entrepreneurs or business owners should be careful while choosing the lenders and gather ample information about the terms and conditions.