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  • Collateral Free Loans

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  • Collateral free loans, in general, imply any loan that is disbursed without a supporting collateral or security to limit the lender’s exposure to risk. A special type of collateral free loan scheme is available in India under the Credit Guarantee Fund Trust Scheme for Micro & Small Enterprises (CGTMSE). Under this scheme, the micro and small enterprises (MSEs) are eligible for collateral free loans up to Rs.1. crore in value.

    The CGTMSE scheme had been introduced as a propellant to the lagging MSE industry in India. The biggest problem faced by these enterprises has been a lack of funding, resulting in limited opportunities for growth, working capital needs or scaling. Most MSEs typically start out with a service or product that may not earn revenue in the near future. To ensure that these enterprises stay above water and can manage to sustain the business through cheap financing, the govt. had released the CGTMSE scheme.

    Major Banks offering Collateral Free Loans

    Collateral free loans can be availed from major banks in India including but not limited to:

    • Axis Bank
    • Bank of Baroda
    • Fullerton India’
    • UCO Bank
    • State Bank of India
    • State Bank of Hyderabad
    • ICICI Bank
    • HDFC Bank

    Features of Collateral Free Loans

    These loans are packed with features, such as:

    • Loans available up to Rs.1. crore for MSEs as per the terms of the MSMED Act, 2006.
    • Loan can be availed by both existing and new MSEs.
    • Higher loan amounts are available on a case-to-case basis. Upper amounts generally attract collateral, though at a lower percentage as compared to the general loan products.
    • Working capital assistance or Term Loan is available.
    • Margin of 75%, 80% or 85% as per the category of applicant.

    Benefits of Collateral Free Loans

    Collateral free loans are highly beneficial for people who don’t have collaterals to show against a loan. Major benefits include:

    • No collateral or third party guarantee needed.
    • Attractive and subsidised rate of interest.
    • Flexible repayment tenures up to 5 years.
    • Letter of credit/bill discounting up to 180 days.
    • No track record requirement.
    • Product development funding.
    • Moratorium period on repayment.
    • Quick and hassle free processing of applications, largely due to a special cell taking charge of these requests.

    Eligibility for availing Collateral Free Loans

    There are few requirements for availing these loans, such as:

    • Private limited companies with SME/SSI registration can apply.
    • Product development expenses, procurement of computers, tools machinery etc.
    • Share allotment proof.
    • Share purchase agreement.

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