Collateral Free Loan
Introduction
Imagine you have a wonderful business idea, but not capital. Banks turn you away or do not want to give you any loan as you may either have no track record or no asset to give a s security. Your social circle is such that they are unable to spare the money that you will collect as seed capital. Will it not be nice if the banks back good ideas and give capital without collateral but have the power to oversee the business transactions and in return ask you to submit continuous reports on the progress of your business?
What is collateral free loan?
1. Availability and Purpose:
- There has been a shift in viewing small businesses as more trustworthy and wanting to repay loans. Thus, collateral-free loans are being made available in India to encourage entrepreneurship, support the small business and foster economic growth.
- These loans are generally targeted at individuals, micro, small, and medium enterprises (MSMEs), and other small home business etc..
2. Lenders:
- Many financial institutions provide collateral-free loans in India, including banks, non-banking financial companies (NBFCs), and government-backed schemes. One of the most prominent being the psbloansin59minutes.com portal launched for helping businesses secure the loans when they do not have any asset that can be used to raise funds.
3. Parameters for Collateral-Free Loans:
- The eligibility criteria for collateral-free loans may vary among lenders but often include factors such as creditworthiness, business viability, and the purpose of the loan.
- Some schemes may require a strong business plan or a certain credit score for approval.
4. Eligibility:
- Collateral-free loans are typically accessible to both individuals and companies, with specific schemes catering to different segments.
5. Institutions Offering Collateral-Free Loans in India:
- Micro Units Development and Refinance Agency (MUDRA): MUDRA, a government initiative, provides collateral-free loans to micro and small enterprises through various schemes.
- Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): CGTMSE facilitates collateral-free credit to MSMEs by providing credit guarantees to lenders.
6. Benefits:
- Promoting Entrepreneurship: Collateral-free loans encourage entrepreneurship by reducing the barrier of providing collateral.
- Financial Inclusion: These loans enable access to credit for individuals and businesses that may not have substantial assets for collateral.
7. Drawbacks:
- Higher Interest Rates: Collateral-free loans often come with higher interest rates compared to secured loans.
- Limitation on Loan Amount: The loan amount may be limited compared to secured loans, as lenders take on additional risk.
Collateral Free Loan Scheme by Central Government- CGTSME
CGTMSE, short for the Credit Guarantee Fund Scheme for Micro and Small Enterprises, was initiated by the Government of India to ensure the provision of collateral-free credit to the micro and small enterprise sector. This inclusive scheme caters to both existing and new enterprises. In collaboration, the Ministry of Micro, Small and Medium Enterprises, Government of India, and the Small Industries Development Bank of India (SIDBI) have established a trust known as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to oversee the implementation of this credit guarantee fund scheme.
Under the CGTMSE scheme, eligible MSMEs can access credit without the need for security or collateral. The scheme offers various facilities, including collateral-free loans up to Rs. 5 crore, cash credit to meet working capital requirements, and term loans for the acquisition of commercial assets and business expansion.
CGTMSE Eligibility:
Both new and existing micro, small, and medium enterprises engaged in manufacturing activities are eligible. However, certain service industries, such as retail trade, educational institutions, self-help groups, training institutions, and selected NBFCs, are excluded.
CGTMSE Coverage:
The fund provides coverage for up to 80% in the following categories:
- Micro and small enterprises owned and operated by women entrepreneurs.
- All credits or loans extended to the North-Eastern states of India, including Sikkim.
In the event of default, the trust settles the claim up to 75% or 80% of the amount not repaid, up to the limit cap of Rs. 50 lakhs. For amounts exceeding Rs. 50 lakhs to Rs. 200 lakhs, the guaranteed cover is reduced to 50%.
CGTMSE Charges:
The trust fund levies a fee at a rate of 1% per annum on the total sanctioned amount. The specific charges are as follows:
- 0.37% for credit up to Rs. 10 lakhs
- 0.55% for credit above Rs. 10 lakhs but up to Rs. 50 lakhs
- 0.60% for credit above Rs. 50 lakhs but up to Rs. 1 crore
- 1.20% for credit above Rs. 1 crore but up to Rs. 2 crores
- 1.35% for credit above Rs. 2 crores but up to Rs. 5 crores
Additional concessions or relaxations in the guarantee fee are provided to specific categories.
Advantages of the CGTMSE Scheme:
The CGTMSE scheme has undergone beneficial enhancements, resulting in several advantages for Micro and Small Enterprises (MSEs):
1. Increased Guarantee Coverage Ceiling:
The ceiling for guarantee coverage has been raised substantially from Rs. 200 lakh to Rs. 500 lakh. This expansion provides MSEs with greater financial security.
2. Reduced Guarantee Fee for Cost Efficiency:
The guarantee fee has been reduced, effectively lowering the overall cost of borrowings for MSEs. This reduction contributes to making credit more affordable and accessible.
3. Inclusion of Micro Finance Institutions:
Micro Finance Institutions, now recognized as Member Lending Institutions (MLIs), are eligible participants in the scheme. This broadening of eligibility enhances the reach and impact of the CGTMSE initiative.
4. Concessions for SC/STs:
Special concessions related to fees and an increased coverage extent have been introduced for Scheduled Castes (SCs) and Scheduled Tribes (STs). This inclusive approach aims to empower these communities through improved financial support.
5. Enhanced Benefits for Women, ZED Certified Units, and Aspirational Districts:
A noteworthy reduction of 10% in the guarantee fee has been implemented, coupled with an increased coverage extent of 85%, specifically for women entrepreneurs, units certified under the Zero Defect Zero Effect (ZED) program, and units situated in aspirational districts.
6. Revised Annual Guarantee Fee Structure:
The annual guarantee fee structure has been revised, with fees reduced to as low as 0.37%. This adjustment further encourages MSEs to avail themselves of the scheme with minimized financial implications.
7. Significant Contribution to the Indian Economy:
The CGTMSE scheme plays a pivotal role in the Indian economy, contributing nearly 10% to the country's GDP. This substantial contribution positively impacts economic growth and employment generation, providing opportunities to over 7 crore people.
8. Inclusive Benefits for New and Existing MSMEs:
One of the most significant advantages of CGTMSE is its inclusivity, extending benefits to both new and existing MSMEs. Notably, it offers credit coverage even to those without prior experience in initiating a business.
9. Optional Credit Cover with Ongoing Monitoring:
While the credit cover is optional, the MSME Ministry attaches due importance to the scheme and monitors its progress over an extended period. This proactive oversight ensures the scheme's effectiveness and alignment with the evolving needs of MSEs.
Applying for Collateral Free Loan through PSBloanin59minutes.com:
Application for a collateral free loan can be made through the website psbloansin59minutes.com. More than 21 banks are providing their services through this website.
Banks like SIDBI, SBI, Bank of Baroda, Punjab National Bank, Indian Bank, HDFC and funds and other organisations like Samridhi Fund, SBI Card, BOB Caps and Trans Union have formed a Company called the Online PSB Loans Limited. This company has started the website psbloansin59minutes.com
Online PSB Loans Limited is a fintech company that was incorporated with the objective of providing advanced technology-based financial innovations and solutions. They have developed a new-age online fund-raising platform to transform the lending experience for Borrowers (Businesses/Individuals) and Lenders (Banks/FIs/NBFCs) by leveraging cutting-edge technology and analytics.
The digital credit marketplace addresses the diverse financial goals of Borrowers, including MSMEs and Individuals, by providing a straightforward, rapid, and hassle-free avenue through a range of products, including Business Loan (MSME and Mudra) and Retail Loan (Personal Loan, Home Loan, and Auto Loan).
