India renders itself as the largest forum for the establishment and the development of Micro, Small and Medium Enterprises in the world economy. Their contribution to India’s GDP is considerably massive.
Yet, the overall engagement of MSMEs in the country is inadequate. The primary reason being the risks undertaken by the financiers toward the MSME ideas. This is because the applicants, generally, do not possess collaterals equivalent to their loan. Therefore, the Government of India has come up with multiple schemes to provide SME loan without any collateral securities to the MSMEs.
WHAT IS COLLATERAL FREE LOAN?
A collateral free loan is a form of loan benefit where the applicant is under no pressure to submit their valuable possessions to the bankers to establish goodwill. They are entitled to receive the aid without the promise of any security worth the value of their loan.
This scheme is introduced to encourage the larger section of the society to fecundate their ideas successfully. This is because of their biggest challenge. That is, their lack of funding builds a barrier from future growth opportunities.
MSMEs COLLATERAL FREE LOANS
The MSMEs can either avail a collateral free SME loan to establish their business or to expand the same. These types of loans generally carry an interest of 8% to 16%. The maximum limit of the amount sanctioned as loan varies between banks. But generally, the banks provide 85% of guarantee coverage for the companies.
Not all banks and financial institutions have the privilege of sanctioning collateral free loans. The Government of India has certified several Indian private and public sector banks and foreign banks to provide this form of loans. And they are –
- Axis Bank
- Bank of Baroda
- Fullerton Bank
- UCO Bank
- State Bank of India
- State Bank of Hyderabad
- ICICI Bank
- HDFC Bank
The repayment of these loans at maximum can go up to 15 years and not more.
In India, only two schemes for the sanction of such loans exists predominantly. And they are –
|FEATURES OF THE SCHEME
|MUDRA (Micro Unit Development and Refinance Agency)
|This loan is provided to establish and expand small scale businesses. There are three categories –
|CGTMSE (Credit Guarantee Funds Trust for Micro and Small Enterprises)
|Under this scheme, the applicants can avail loans up to Rs. 2 Crores.
SME loan covers for companies which are in bad conditions such as debt and loss of capital, ill factors which are not under the control of the management and companies with credit facility below Rs. 1 crore.
FEATURES OF COLLATERAL FREE LOANS
- Applicants can avail loan up to Rs. 1 Crore under the MSMED Act, 2006.
- This loan is applicable to both new MSMEs and the existing MSMEs.
- Term loan (Working Capital Assistance) for the company is available.
- Guarantee coverage u to 80-85% is available for the applicants.
BENEFITS OF COLATERAL FREE SME LOANS
- There is no need for submission of collateral securities or third-party guarantees.
- These loans have subsidized rate of interest.
- The repayment duration of the loan is flexible, starting with 5 years.
- Letter of credit is up to 6 months.
- There’s no requirement of record.
- These funds are put to productive developments.
- The online procedure to get a collateral free loan is quick and hassle free.
- The private companies should be registered under SME/SSI.
- Product development, machinery, tools, and other expenses should be neat.
- Share allotment proof should be submitted.
- Share purchase agreement.
- The applicant should contain a positive credit in his work and should not have taken part in any illegal activities. The applicant should have a reputed background in terms of character, work ethics and livelihood in general.
PROCEDURE TO GET A COLLATERAL FREE LOAN
- DOCUMENTS REQUIRED TO AVAIL THE LOAN
- PAN Card
- Aadhaar Card
- Address proof of self and of the firm
- Business Registration proof
- Bank statement for the last six months.
- Fill in the information on the online form. The applicant will receive a call from the representative within a week’s time.
- With the assistance of the bank’s or the NBFC’s representative, the unsecured loan will be sanctioned to the applicant within a week’s time.
WHO CAN APPLY FOR A COLLATERAL FREE LOAN?
There are multiple sections of professions and the banks and the financiers always work toward their success. They are present in the society in the form of proprietors, partners, private companies, trusted societies or closely held communities. This scheme of loan promotes all sections invariably.
- SME LOANS FOR MANUFACTURERS
This loan is available to all major sectors such as engineers, architects, automobile companies, dairy, food, fertilizers companies, pharmaceuticals and chemical factories, companies producing agricultural products, jewelry makers etc.
- SME LOANS FOR SERVICE PROVIDERS:
This loan is also available for people dealing with the sectors of hospitality, logistics, private and government contractors, healthcare, teachers, clearing and forwarding, education, doctors, engineers, chartered accountants, and consultants.
- SME LOANS FOR TRADERS:
SME loans are also sanctioned to different types of traders across the country for the benefit of them and the people depending them. All types of retailers, wholesalers, stockist, and distributors.
The Government of India has come up with the scheme of unsecured or collateral free loans for the people to improve the standard of living of the generic communities in the country currently.
This scheme also aims to increase the spectrum of opportunities for the people and help and assist them toward their establishment or expansion of their business. The businesses that move forward create more opportunities and will help in the prosperity of the economy. It will eventually lead to the overall growth of the entire country. A smooth and prosperous economy would create a sophisticated and functioning environment. This will help its people to lead a successful and meaningful life. #KhabarLive #hydnews