How small businesses can avail collateral free loans?

Last Updated at: November 04, 2019
1299
How small businesses can avail collateral free loans

Usually, people who want to set up a business might think of applying for a collateral-free loan. However, they could be confused about the procedure to avail such a loan. In that case, it has to be known that business entities that are involved in the manufacturing and service sectors are eligible to avail such loans.

Many people who want to start a business may think of availing a collateral-free loan but they may not be sure of what the exact procedure is. Collateral is an asset that the borrower borrows against. If it is not repaid the lender has every right to take possession of the collateral asset. For example, while taking mortgage loans, the house may be pledged and if it is not repaid the bank seizes the house. Hence, a collateral free loan means that there is no asset or collateral is pledged to borrow against. So, the question is how can these people avail collateral-free business loans? The solution is that one can apply for the business loan under the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) scheme. This CGTMSE scheme has been introduced by the Ministry of Micro, Small and Medium Enterprises, in order to enhance first generation entrepreneurship.

Below you’ll find the list of services that will walk you through the need for the service, the eligibility, documentation procedure and benefits. Our experienced team members are there to guide you and complete the process at ease.

 

Eligibility

Business entities which are in the service and manufacturing sectors are eligible to apply for collateral-free business loan. Whereas, agriculturists, self-help groups, educational institutions, retail traders, joint liability groups and training institutions are not eligible.

Advantages for the entrepreneur

Entrepreneurs get loans without providing collateral and also without a repayment or business track record of three to five years.

Even women entrepreneurs, micro-entrepreneurs who avail loans below Rs.2 lakh and those entrepreneurs who are located in the North-Eastern Region and Jammu and Kashmir get promising condition and treatment. Even the credit guarantee fee applicable to them is less by 0.25%. There are nearly 130 banks which include the public sector, the private sector and the regional rural banks providing these kinds of loans.

The responsibility of the borrower to avail the loan

Firstly, a borrower should register his/her business entity as either as a proprietorship, private limited company, limited liability partnership or a one person company. Prepare a project report to show the sustainability of the business. The bank will then sanction the loan based on the future cash flow projections.

Register your MSME for FREE

Applying to the bank for the loan

1)   Get the acknowledgement and loan application number from the bank.

2)   Respond to all probes from the bank.

3)   Track the application to check or know the loan status, whether the loan has been sanctioned or rejected.

In case of the lending institution

Loans up to Rs.50 lakhs by the Regional Rural banks and financial institutions, and Rs.200 lakhs by scheduled commercial banks are covered under CGTMSE for a prescribed fee.

The bank recovers the CGTMSE fee from the borrower in the following way-

One time guarantee fee of 1% and 0.5% annual service fee for the amounts up to an extent of Rs.5 lakhs.

One-time guarantee fee of 1.5% and 0.75% annual service fee for the amounts more than Rs.5 lakhs.

Banks are stimulated to absorb the fee up to 0.25% for assured favored categories.

The range of cover available

Up to 5 lakh – 85% of the amount in default is subjected to a maximum of 4.25 lakh

Above 5 lakh up to 50 lakh -75% of the amount in default subject to a maximum of 37.50 lakh

Above 50 lakh and up to 200 lakh – 50% of the amount in default is subjected to a maximum of 100 lakh

Women Entrepreneur’s/Units located in North East Region – 80% of the amount in default subject to a maximum of 40 lakh.

All other categories of borrowers – 75% of the amount in default is subjected to a maximum of 37.50 lakh.

The bank is contented to onboard first-time entrepreneurs as the new clients who will grow along with the bank. Also, cross-selling to these kinds of clients will yield revenue to other business verticals.

In addition, the government has also allocated many MSME schemes that offer a great boost to entrepreneurs to start their ventures.

Well, if you are involved in manufacturing and service sectors, then you can get collateral-free loans. But this is not applicable for those who run educational institutions, self-help groups and training institutions, retail traders and agriculturists. If you get a collateral-free loan, then you will be able to enjoy a lot of advantages as an entrepreneur.

How small businesses can avail collateral free loans?

1299

Usually, people who want to set up a business might think of applying for a collateral-free loan. However, they could be confused about the procedure to avail such a loan. In that case, it has to be known that business entities that are involved in the manufacturing and service sectors are eligible to avail such loans.

Many people who want to start a business may think of availing a collateral-free loan but they may not be sure of what the exact procedure is. Collateral is an asset that the borrower borrows against. If it is not repaid the lender has every right to take possession of the collateral asset. For example, while taking mortgage loans, the house may be pledged and if it is not repaid the bank seizes the house. Hence, a collateral free loan means that there is no asset or collateral is pledged to borrow against. So, the question is how can these people avail collateral-free business loans? The solution is that one can apply for the business loan under the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) scheme. This CGTMSE scheme has been introduced by the Ministry of Micro, Small and Medium Enterprises, in order to enhance first generation entrepreneurship.

Below you’ll find the list of services that will walk you through the need for the service, the eligibility, documentation procedure and benefits. Our experienced team members are there to guide you and complete the process at ease.

 

Eligibility

Business entities which are in the service and manufacturing sectors are eligible to apply for collateral-free business loan. Whereas, agriculturists, self-help groups, educational institutions, retail traders, joint liability groups and training institutions are not eligible.

Advantages for the entrepreneur

Entrepreneurs get loans without providing collateral and also without a repayment or business track record of three to five years.

Even women entrepreneurs, micro-entrepreneurs who avail loans below Rs.2 lakh and those entrepreneurs who are located in the North-Eastern Region and Jammu and Kashmir get promising condition and treatment. Even the credit guarantee fee applicable to them is less by 0.25%. There are nearly 130 banks which include the public sector, the private sector and the regional rural banks providing these kinds of loans.

The responsibility of the borrower to avail the loan

Firstly, a borrower should register his/her business entity as either as a proprietorship, private limited company, limited liability partnership or a one person company. Prepare a project report to show the sustainability of the business. The bank will then sanction the loan based on the future cash flow projections.

Register your MSME for FREE

Applying to the bank for the loan

1)   Get the acknowledgement and loan application number from the bank.

2)   Respond to all probes from the bank.

3)   Track the application to check or know the loan status, whether the loan has been sanctioned or rejected.

In case of the lending institution

Loans up to Rs.50 lakhs by the Regional Rural banks and financial institutions, and Rs.200 lakhs by scheduled commercial banks are covered under CGTMSE for a prescribed fee.

The bank recovers the CGTMSE fee from the borrower in the following way-

One time guarantee fee of 1% and 0.5% annual service fee for the amounts up to an extent of Rs.5 lakhs.

One-time guarantee fee of 1.5% and 0.75% annual service fee for the amounts more than Rs.5 lakhs.

Banks are stimulated to absorb the fee up to 0.25% for assured favored categories.

The range of cover available

Up to 5 lakh – 85% of the amount in default is subjected to a maximum of 4.25 lakh

Above 5 lakh up to 50 lakh -75% of the amount in default subject to a maximum of 37.50 lakh

Above 50 lakh and up to 200 lakh – 50% of the amount in default is subjected to a maximum of 100 lakh

Women Entrepreneur’s/Units located in North East Region – 80% of the amount in default subject to a maximum of 40 lakh.

All other categories of borrowers – 75% of the amount in default is subjected to a maximum of 37.50 lakh.

The bank is contented to onboard first-time entrepreneurs as the new clients who will grow along with the bank. Also, cross-selling to these kinds of clients will yield revenue to other business verticals.

In addition, the government has also allocated many MSME schemes that offer a great boost to entrepreneurs to start their ventures.

Well, if you are involved in manufacturing and service sectors, then you can get collateral-free loans. But this is not applicable for those who run educational institutions, self-help groups and training institutions, retail traders and agriculturists. If you get a collateral-free loan, then you will be able to enjoy a lot of advantages as an entrepreneur.

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