How to Get Collateral Free SME Loans for Your Business in India

Rajath Kumar

The inability to provide collateral has been a major hindrance for small and medium enterprises (SMEs) seeking loans to fund their working capital needs, finance their expansion or take advantage of growth opportunities. Although the government has been taking steps to provide the necessary financing to SMEs, traditional lending institutions offer generic credit products to SMEs. When these financial institutions offer collateral free business loans, they impose stringent eligibility criteria, have long loan approval processes and the requirement of a guarantor to safeguard themselves against default.

Against this backdrop of skepticism, new-age lenders like Capital Float have emerged, using cutting-edge technology and innovative products to ease the loan approval process and support SMEs to repay loans by tying repayments with their receivables. These FinTech companies, which bring together finance and technology, specialize in business loans in India for the SME segment.

Specialized Products from FinTech Lenders

FinTech lenders aim at fulfilling the credit requirements of Indian SMEs by developing innovative and customized loan products and simplifying the process of loan application.

Realizing that the main problem faced by SMEs in securing loans is their inability to provide collateral, Capital Float offers flexible, collateral-free business loans via its online platform. These loans can be used to purchase inventory, optimize cash flows or fund any other expense. Some of these loans are provided against the borrower’s bills receivables or credit card receivables. All of Capital Float’s credit products come with easy and flexible repayment options.

Choosing the Collateral Free Loan that Best Suits Your Business 

For any business loan requirement, one needs to assess the amount needed and submit an online application, along with digital copies of relevant documents. These documents may include income tax returns for a period of three years and bank statements for the last six months. The use of advanced software, with highly powerful algorithms, allows Capital Float to process the loan application and transfer the sanctioned amount to the SME in a matter of 3 days.

Related: What Makes Unsecured Business Loans Safe for Your Small Business?

Small businesses can explore a variety of loan options and choose the one that best suits their business loan requirements. Here are the things one needs to consider:

If your SME has positive monthly cash flows and needs funds for the short term, you can apply for Capital Float’s Term Finance product. One can borrow an amount ranging between ₹1 lakh to ₹1 crore, with the loan period ranging from six months to three years. Term Finance loans are disbursed within three days.

The growing popularity of online shopping has propelled the growth of ecommerce companies offering a variety of products and services. On the other hand, increasing awareness of customers, shrinking lead times and the need to manage inventory effectively have posed new challenges for SMEs. Here’s where the Online Seller Finance product works best. This innovative credit option is a short-term loan provided to e-commerce sellers who are selling their products on online platforms. These companies may be looking to raise funds for purchasing stock, diversifying their operations or taking initiatives to increase the visibility of their products. Partnerships with online marketplaces, like Amazon, PayTM, Snapdeal, Myntra, Shopclues and eBay allow Capital Float to help merchants access fast and flexible working capital funding. The loan amount is decided on the basis of the monthly sales and projected revenues of the borrower. Flexible repayment options and the availability of credit of up to two times the monthly sales of the business are some of the attractive features of Online Seller Finance.

Another attractive short-term collateral free loan option is the Pay Later Finance, which works like a revolving credit facility. A credit capacity is determined, based on the prospects of the business. The total amount is not transferred in one go. The SME has the flexibility to borrow amounts as and when business loan requirements arise. The loan amounts can be repaid over a 30-60-90 day cycle. The repayment restores the sanctioned limit, making more credit available for future requirements. Interest is charged only on the amount drawn and not on the entire credit capacity.

Businesses that receive payments via credit card transactions or point of sale (POS) machines can opt for a special financial product known as Merchant Cash Advance. Partnerships with multiple POS machine vendors such as Pine Labs, Mswipe, ICICI Merchant Services, MRL Posnet and Bijlipay have enabled Capital Float to offer swift and hassle-free business loans in India to SMEs using POS machines at their establishments. This tailor-made financial product offers loan amounts of up to 200% of the borrower’s monthly card settlement. The tenure ranges from six months to a year, and a business can raise as much as ₹1 crore.

SMEs also have the option of using their accounts receivables to raise business loans at attractive rates. With the Supply Chain Finance product, an SME can liquidate its receivables immediately into cash and use the same to fund the execution of the order or the growth and expansion of the business. A company can borrow funds ranging from as low as ₹1 lakh to as high as ₹1 crore. One also has the option to repay the loan in easy instalments or in one go in case funds become available to the business.

For SMEs seeking collateral free business loans with quick approvals and disbursal of funds, Fintech lenders are a viable option. The priority for such lenders is to not only ease the process of application and disbursement, but also help SMEs repay loans easily and continue to have credit available.