India is one of the world's largest centers for Micro, Small, and Medium Enterprises (MSMEs). These enterprises play a crucial role in the Indian economy, but despite their large number, MSMEs in India suffer from a lack of adequate and timely access to funds. The key reason for this is that banks often view MSMEs as high-risk organizations and are therefore reluctant to lend to them. Also, MSMEs often lack the necessary collateral to get a loan. Therefore, a business loan without security is the best option for them.
Earlier, MSMEs were defined based on the investments they used to put in, but now the revised definition also includes the company's turnover. MSMEs are now called micro-enterprises if they have investments up to INR 1 crore and have a turnover of less than INR 5 crores. The limit for the investment has been increased from INR 5 crores to INR 10 crores for the small units that have a turnover of less than INR 50 crores.
Enterprises that have investments up to INR 20 crores and have a turnover of less than INR 100 crores are now called Medium Enterprises. This change in the classification is in the favour of the MSMEs. These days reputed NBFCS are offering business loans without security specifically for MSMEs.
What is a business loan without security?
A business loan without security is one that is provided to the borrower without any guarantee attached to it. In simple terms, this means that even though you have nothing to pledge against, you can approach a lender and borrow money.
Mentioned below are two types of business loans that you can get without security.
WORKING CAPITAL LOANS (Manufacturing, Service, and Trading) to be used for:
- Raw Materials/Stock Purchase
- Business Premises Renovation
- Supplier Payments/General Business Expenses
- Product/Market Expansion
- Machine Repair
ASSET PURCHASE LOANS (Manufacturing) to be used for:
- New Machine Purchase
- Second-hand Machine Purchase
To avail of a business loan without security, the borrower needs to meet specific document requirements. They include:
- KYC (personal): Aadhaar, PAN, Voter ID, driving license, or passport.
- Address proof: Service bills such as power bills, water bills, ration cards, and rental agreements.
- Finance proof: GST filings, profit and loss accounts, banking statements, or copies of passbooks over the last two years.
- Company-related documents: Certificates of firm registration (Udyam Registration), technical certificates in the case of self-employed practitioners, proof of business turnover for sole proprietors, relationship agreements for business partners, and, where applicable, the Memorandum of Partnerships.
However, keep in mind that the eligibility criteria and documentation requirements can vary.
Reputed NBFCs like Kinara Capital have a quick and easy process to disburse a business loan without security in 24-hours. Here is the process to apply for a collateral-free business loan from Kinara Capital.
- Check your eligibility - - Enter your basic information such as business vintage, Pincode, sector, and turnover to check if you are eligible. If yes, you will be contacted by a Kinara Loan Officer for the next steps.
- KYC Verification - Have the following documents ready for personal and business:
- GST verification
- Bank account with 12 months’ statement (applicant, co-applicant, and business)
- Machinery details (only for the manufacturing sector)
- Property (no documents required, only information)
- Udyam Registration
- Business KYC (registration type)
- Personal PAN and Aadhaar
- Address proof
- Loan Approval – If all documents are in place and the loan application is approved, the last step is to complete loan formalities such as providing signatures on documents, nominee and loan sanction details. Get your quick collateral-free business loan within 24 hours.
Why managing your cash flow is important
- Even big organizations can experience cash flow challenges when their debts are due before they've accumulated enough income from sales to cover their bills.
- It is a smart move for MSMEs to get a business loan to manage their everyday operations and take care of any unforeseen expenses.
- Working Capital loans are typically used to meet short-term obligations. This can help MSMEs handle cash flow effectively.
Why should an MSME take a loan without security?
- To buy a warehouse
- To purchase manufacturing supplies such as machinery and other equipment
- To purchase raw materials to meet the company's capital needs
- To pay the employees' salaries and bills
- To fund business expansion
MSMEs are an essential part of the economy and play a crucial role in promoting growth, innovation, and prosperity. They play a significant role in accelerating the Gross Domestic Product and employment rates of a country.
However, MSMEs face higher operational and growth constraints than larger firms, severely inhibiting their progress. Among these constraints, access to finance and the cost of finance have been identified as significant barriers.
Given these circumstances, business loans without security from reputed NBFCs like Kinara Capital come as a breath of fresh air. These loans help MSMEs address their financial constraints and therefore drive financial inclusion.
Conclusion = However, MSMEs face higher operational and growth constraints than larger firms, severely inhibiting their progress. Among these constraints, access to finance and the cost of finance have been identified as significant barriers. Given these circumstances, business loans without security from reputed NBFCs like Kinara Capital come as a breath of fresh air. These loans help MSMEs address their financial constraints and therefore drive financial inclusion.