Can I Get A Collateral-Free Rs 30 Lakh Business Loan?

Building a business, whether it is a large firm or micro, small and medium enterprise (MSME), requires financial capital. Financial resources do not just help with day-to-day cash needed to meet short-term gaps in anticipated cash inflows and outflows but also to power long-term expansion projects.

The capital can be in the form of either equity or loan. In most cases, however, it is a combination of the two. The loan can be advanced by the shareholders themselves or by a third-party institution such as a bank or a non-bank finance company (NBFC).

Business owners face an important question when it comes to taking a loan from external agencies—would I have to mortgage part of my business assets to avail a loan?

Collateral

Mortgage finance would mean using some personal or business asset, such as a building or machinery or inventory as a collateral, to avail a loan.

In effect, if a small business owns some of these assets that has a value, it can use that as a security with the lender, thereby giving a comfort factor for borrowing money. Lenders use the collateral as a security and risk mitigation factor.

As the amount of the loan increases, a lender may insist on such collaterals as a security to lend. However, for smaller-ticket business loans many lenders do not ask for such collaterals.

Collateral-Free Loans

These are small business loans and the loan is approved based on the income and cash flow generation of the business. Lenders assess the repaying capacity of the company after assessing the cash inflows and outflows.

They also factor in the credit profile and history of the owners of the business. So, if the business owner has a clean record with timely repayments of any personal or business loan, they get swift approval for fresh lending.

Similarly, personal credit scores capture the timely payments of credit cards owned by the business owner.

The size of collateral-free loans differs from lender to lender, but the amount can be as high as Rs 50 lakh or more.

Process To Take Collateral-Free Business Loan

Many lenders have tailored credit solutions for small business owners based on the ticket size of loans. Borrowers can opt for such loans accordingly. For instance, small business loans can be availed swiftly with only a few basic documents. While the list of documents may slightly vary from lender to lender, here are the most common ones.

• KYC documents: Address and identity proof of the borrower and all co-borrowers
• Copy of the PAN card of the borrower and co-borrowers
• Bank statement for the previous six to 12 months of the main operative business account
• Signed copy of standard loan terms

For loans beyond a basic threshold, some lenders require just one additional document: the GST registration certificate of the borrower.

One can either go to the lender’s branch or apply online and upload their know-your-customer (KYC) documents. Once this is completed, the small business loan is approved and disbursal is automatically done into the bank account of the operating business. This can take as low as 48 hours to process.

One can also discuss the loan requirements with the lender to customize it according to one’s anticipated cash flows and repaying capacity. The actual money that is to be payable on a monthly basis can also be pre-determined and calculated online and a business loan borrower can accordingly adjust the time period of the loan.

Conclusion

Well-known NBFCs like IIFL Finance charge competitive interest rates that begin at around 11.25%, making it very attractive and allows borrowers to return the money periodically in sync with their own invoicing cycle.

IIFL Finance offers customized business loan products for loans of up to Rs 10 lakh and another that allows one to borrow as much as Rs 30 lakh without any collateral.