How to Get a Startup Loan without Collateral

In the past few years, start-ups have emerged as a significant contributor to the economy, creating millions of employment opportunities. One of the biggest issues that startups face is a lack of funding. Often, startups work on novel technology-based ideas, which is why adequate capital is a must for them to take off. In terms of funding options, equity and loans are the most prominent. Many entrepreneurs choose loans over equity since they don’t require dilution of ownership.

When startups look for loans, an issue that crops up is the lender requiring collateral. This is a problem for small businesses that may not possess any assets.

Here is how you can get a startup loan without pledging collateral.

Tips to get a startup loan without collateral

  • Market Research: It is important to research the market for a suitable business loan with low-interest rates and no collateral requirement.
  • Improve Your Credit Score: If you want to prove yourself a suitable borrower, you need to have a good CIBIL score. If you happen to have a good score, it is more likely that you will be eligible for an unsecured loan because of your trustworthiness as a borrower. It is also likely that you will get a lower interest rate with a high score.

Types of loans without collateral

MUDRA Loan Scheme

Launched under the Pradhan Mantri Mudra Yovanna (PMMY), MUDRA stands for Micro Units Development and Refinance Agency and grants loans to the small business sector without collateral security. The scheme provides loans under three categories:

Shishu Scheme: Loan up to Rs. 50,000/- at a 1% business loan interest rate. The repayment period for this scheme is 5 years.

Kishore Scheme: Loan amount ranges between Rs. 50,000/- to Rs. 5 lakhs.

Tarun Scheme: Loan amount ranges between Rs. 5 to Rs. 10 lakhs.

Stand-up India Scheme

This loan is provided to the people falling under the SC/ST category and to women entrepreneurs. This loan range is between Rs. 10 lakhs to Rs. 1 crore, and the tenure goes up to 7 years.

Coir Udyami Yovanna

Launched by the Coir Board, the Coir Udyami Yovanna grants loans up to Rs. 10 lakhs to project-based businesses. The loan is provided at 25% of the total project cost and a tenure of 7 years. The interest rate is negotiable in this scheme.

Business Loan Eligibility Criteria

While the eligibility criteria can differ, some common conditions lenders have are as below –

  • The age of the applicant must be between 21-65 years.
  • The company must provide innovative products.
  • The company should not be older than 5 years.
  • The company should be approved by the Department of Industrial Policy and Promotion (DIPP)
  • The company must get a patron guarantee from the Indian patent and trademark office.

Remember always to choose a reputed lender for an unsecured startup business loan.

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