Step-by-Step Guide to Securing Collateral-free Working Capital Loans

A collateral free business loan ends the hassle of putting valuable personal or company assets at risk in exchange for credit. Moreover, they are quick to obtain as the lenders do not need to evaluate the collateral and its related documents. Business owners can easily get unsecured MSME loans by meeting the lender’s eligibility criteria, completing the loan application process correctly, and ensuring that their credit history is reliable. 

Getting a working capital loan without collateral is easy, thanks to the digital loan procedures, competitive interest rates, and flexible repayment terms many NBFCs provide. Here is how to get an unsecured working capital loan to fuel a business.

Why Does a Business Need Working Capital Loan?

Securing adequate funding is one of the biggest hurdles business owners face to turn their vision into reality. Whether they need money to cover unexpected expenses, pay regular bills and wages, buy new equipment, or finance an expansion project, having access to working capital is crucial to a venture’s success. A working capital loan is the best possible solution to this challenge, as it provides the financial resources required for business sustenance and growth. By offering customisable and flexible funding options without security, a business loan application and loan sanction help borrowers overcome any financial obstacles standing in the way of their business’ success vision.

What is a Collateral-Free Business Loan?

A collateral-free loan is an unsecured business loan that does not require any form of collateral or security from the borrower. Instead, the lenders rely on the applicant’s financial documents, credit score, annual turnover and business vintage to assess their repayment capacity. The absence of collateral makes these loans suitable funding options for MSME owners who need financial support but do not want to risk their assets. 

Collateral can be the applicant’s property that acts as a security for the lender. Borrowers pledge it to the lending institution against the loan they borrow. If they fail to repay the borrowed amount with interest, the lending institutions have the right to seize the collateral and sell it to compensate for the unpaid debt. On the other hand, if they successfully repay the loan, the loan provider returns the collateral’s ownership to the borrower. 

Steps to Obtain a Working Capital Loan Without Security

These steps will take an applicant through the process of obtaining a working capital loan without security:

  • Compare and Find a Suitable Loan Offer: Several loan companies offer unsecured Business Loans in India. Aspiring borrowers must compare their features, interest rates, customer service, repayment terms, prepayment charges, etc., to find the most affordable and suitable loan plan. 
  • Meet the Eligibility Criteria: Every loan provider has eligibility criteria that applicants must meet to obtain a loan. Before filling the business loan application, loan seekers must review their selected lending institution’s eligibility conditions and ensure that they are a good fit. Fulfilling the eligibility criteria streamlines and accelerates the loan process and makes the loan amount accessible faster.
  • Check the Credit Score and Improve if it is Low: The next step in securing a Business Loan is to check the personal and business credit score. It reveals the applicant’s creditworthiness and affects the loan provider’s decision for loan sanction. Since it is an unsecured loan, the credit score is vital for the loan application process. Financial institutions decide the applicant’s loan eligibility, business loan interest rate, and repayment terms based on this 3-digit number. If it is lower than 700, taking steps to improve it is worth the extra effort.
  • Fill the Application Form and Provide the Documents Required: Loan companies require the applicants to submit some essential documents during the loan application process. The required documents include identity and address proofs, bank statements, business ownership proof, ITR, balance sheet, profit and loss account, GSTIN, etc. Organise these documents before submitting them during the Business Loan application for easier and faster approval.
  • Double Check the Information Before Submitting: While filling out the loan application form, double-check the information, especially the PAN, business nature, financial, and annual turnover. Errors, discrepancies, and inconsistencies may result in delayed or rejected loan approval.

With a collateral free Business Loan, MSME owners can easily and quickly get the required funding to fulfil their operational needs. Take advantage of their flexible terms and easy repayment options to grow your business and expand its horizons without pledging any assets as collateral.

About the Author
Amaira Sharma is finance expert and former business growth strategist who has more than 8+ years experience in the industry, now she helps others to get better financial stability and standards. She loves to write useful tips on personal finance and businesses.