Are you one of those entrepreneurs who is worried about how to acquire financing for a start-up business venture? While this is possible for someone who has a good credit score and financial standing, it could prove to be an uphill task for an entrepreneur who is new in the field and lacks a substantial monetary base.
In such a situation, collateral free loans emerge as a viable option for small business owners for a number of reasons. To begin with, your credit score does not really matter, and as long as it is 600 or above, you are eligible for a loan. Lenders who grant collateral-free loans to MSME are also not very stringent on qualifications and grant approval within the shortest possible time. With advantages such as these, small business owners need not spend sleepless nights thinking about a source of financing.
Business financing options that offer collateral-free loans to MSME often take the form of –
Angel Investors – Angel investors are individuals that are more likely to invest in start-ups or small businesses. They provide finance not only as working capital, but also offer assistance in the personal workings of the business to maximize revenue. Because of being picky, they only invest after carefully sifting through the available options. Therefore, obtaining finance from an angel investor is a considerable achievement.
Crowdfunding – A fairly recent method devised in the golden era of the internet, crowdfunding involves raising funds by convincing people to invest in their business. People’s business ideas are posted on crowdfunding platforms to attract potential investors and are meant to raise capital for their business to grow.
Financial lenders – Financial lenders, independent of banks, are an easier alternative to obtain collateral-free loans in India. Banking institutions often demand an exhaustive process for loan approval with what might be unfavourable interest rates or loan tenures. On the other hand, financial lenders only need you to meet basic criteria before approving a loan from them.
Venture capitalists – Operating from an external firm, venture capitalists have established groups of people who provide capital to the company in exchange for being shareholders of that company. Share prices are usually negotiable as per the valuation of the company.
Finance raised through venture capitalists is viable for people who are ineligible for bank loans. However, they also need to prove the high potential in the business regarding growth, innovation, and a competitive edge. Other advantages of employing venture capitalists include sharing of information, connections in the industry and providing a clear direction for the company going ahead.
Microloans – Compact loans that can be availed by entrepreneurs with barely any collateral are called microloans. Depending on the lender, these might carry restrictions as to how the loan amount is spent, in which case the borrower would need to limit spending the amount on a specific purpose. Usually microloans cover operational costs, inventory, equipment, repair and maintenance and so on.
Government grants – If your business is centred on medical research that can be used for commercial purpose on completion, then it has a high chance of qualifying for a government grant. Such grants are offered by the government to encourage innovation and research in the field of science and technology and can be availed by business ventures that fulfil certain criteria. Given the source of finance and the conditions attached, ventures that avail this type of loan are required to meet the stated objectives and also provide progress reports at requisite intervals.
Acquiring collateral-free loans may be difficult but not impossible, as long as you conduct research and identify business financing options that provide this solution. Since small businesses usually find it difficult to obtain financial backing from regular sources, they need to look for lenders that provide collateral free loans to MSME at favourable terms. A business financing option that fits the profile comes across as ideal in terms of offering a viable solution.