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Collateral free loans refer to any loan that doesn't require a backing of an asset, security deposit or a guarantor. It is an unsecured loan. The collateral free business loans are unsecured and consider your current income, cash flows and viability of the business to ensure that you can repay your loan timely.
First, let us ask ourselves, what is a Collateral? Collateral is an asset which has a definite financial value against which you can borrow money. The assets which can be pledged to avail a loan are real estate, land, machinery, shares & stocks, and vehicles. In case you are not able to repay the loan, the lender reserves the right to take permanent custody of the pledged asset and sell it to recover the loan amount that is unpaid.
Collateral free loans do not require you to pledge any asset and offers you complete flexibility and peace to avail any loan. You can avail Collateral Free loan for personal as well as business purposes. Higher education, medical emergencies, as well as marriage expenses can be funded as collateral-free loans. There are many business loans that are collateral-free. One of the collateral free loans that are very popular is Cash Credit and Term Loan under CGTMSE.
As per the CGTMSE, the micro and small enterprises (MSEs) are eligible for collateral free loans up to Rs 1 crore. This scheme has been proposed to give an impetus to the micro and small enterprise in India. This sector has long been plagued by issues such as lack of funding, growth opportunities, working capital requirements and scaling the business. The Government of India in collaboration with the SIDBI has launched this loan so as to ensure the viability of the SME projects.
About Collateral Free Loans
The biggest benefit of a collateral-free loan is the fact that there is no requirement of collateral. Some of the other benefits are:
The eligibility criteria are very straightforward for availing these loans:
All the public sector banks such as SBI, Allahabad Bank, UCO Bank, Bank of Baroda, Bank of India, Corporation Bank, Dena Bank, IDBI Bank, and Indian Overseas Bank offer the collateral-free CGTMSE loans.
The private sector banks offering these loans are ICICI Bank, Axis Bank, HDFC Bank, IndusInd Bank, Kotak Mahindra Bank, ING Vysya Bank etc.
1. Who is eligible for the collateral-free CGTMSE loans?
Micro/ Small Enterprise (manufacturing/ services) as defined under MSMED Act, 2006 and by RBI is eligible for this loan. Retail sector and Education sector are exclusions to this loan.
2. What is the purpose of this loan?
The funds from this loan can be utilized by MSEs for financing Working Capital, Term Finance for Capex, product development, business expansion etc.
3. What is the maximum loan amount that can be sanctioned under the CGTMSE loan?
A maximum of Rs 1 crore will be sanctioned under this scheme.
4. What is the interest charged on these loans?
The interest charged is left to the discretion of the bank and charged as per the bank base rate.
5. What is the tenure of these loans?
The tenure for cash credit is 12 months, while for the Term loan it is a maximum of 5 years.
Credit boost likely for rural women SHGs3 Jan 2020
The government is looking forward to doubling the cap for collateral-free loans given to self help groups for women in rural India. It seeks to boost entrepreneurship and economic activity by providing around Rs. 20 lakhs. Data shows that under this ...
The government is looking forward to doubling the cap for collateral-free loans given to self help groups for women in rural India. It seeks to boost entrepreneurship and economic activity by providing around Rs. 20 lakhs. Data shows that under this scheme, Rs. 66,925.46 crores were disbursed in 2018-19 from Rs. 23,316.34 crore in 2013-14. In the current financial year the figure is expected to cross Rs. 95,000 crore. More the credit in the rural economy will help spur economic activity.
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