Collateral free loans for businesses

December 5, 2020 Finance Talk Valli Sarvani No comments

Banks ask for collateral when you seek a loan from them. However, it is difficult for all borrowers to put collateral for their loans.

In this context, to help businesses get enough funds, the Government of India in association with Small Industries Development Bank of India (SIDBI) launched a scheme, Credit Guarantee Fund Trust Scheme for Micro & Small Enterprises (CGTMSE) in 2000.

CGTMSE scheme helps micro, Small & Medium Enterprises (MSMEs) to get loans hassle-free. Micro and Small Enterprises engaged in manufacturing and service activity can avail this loan. However, activities like agriculture excluded from it. Furthermore, Self Help Groups (SHGs), Educational Institutions and Training Institutions also cannot avail it.

The borrowers shall have SME/SSI registration to apply for the loan. They shall also share purchase agreement and allotment proof.

All major banks like State Bank of India, Bank of Baroda, HDFC Bank, ICICI Bank, Axis Bank etc. offer this loan to eligible borrowers.

Features of this collateral-free loan are as follows:

Micro and small enterprises (MSEs) can get collateral-free loans up to ₹1 crore.
Both new and existing MSEs can avail loans under this scheme. They can obtain a loan up to ₹1 crore. They can even get more amount but it needs collateral.
Borrowers should have to arrange margin money to get this loan. It varies from 75 per cent to 85 per cent depending on the category and loan amount.
Term loan as well as working capital assistance will be provided.

Benefits of the loan are:

The main benefit of the loan is that it does not require collateral or third-party guarantee.
There is no need for the track record.
Attractive rate of interest.
Since a special cell takes care of these loans, they can be processed quickly and easily.
Borrowers can have flexible repayment terms and moratorium repayment period.

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