How Can An SME Get A Collateral-Free Loan in India?

The Ministry of Micro Small and Medium Enterprises (MSME) was set up in the late 1940s as a vocational training center. The primary function then was to provide a means of employment for people who were displaced because of the partition. Later, the Micro Small and Medium Development (MSMED) Act came into being in 2006 and MSME was converted into an umbrella organization that dealt with policy decisions regarding all the Small and Medium sector undertakings. As of 2016, the statistics show that there are 51 million SMEs working out of India while employing close to 117 million people. They also contribute to 45% of the total manufacturing output of all of India. It would be an understatement to say that the SMEs are crucial for India’s development path. Although multiple steps like the MSMED Act were introduced to inject finance into the SMEs over the years, it still remains very hard for small businesses to get funding for their dream projects. Here is a look at how to go about the process.

Securing an unsecured loan for your small business

The MSME Ministry has collateral-free loans for small sector undertakings. The funding is meant to benefit these companies working out of the manufacturing and service sector in tangible ways. It would be easier to get financial backing for overhauling operating costs or even for term loans which could be used for equipment acquisition.


The primary requirement for availing this loan is that the projected profits from the potential business venture should be 4 times that of the original principal borrowed.


A palpable business structure needs to be ironed out and condensed into a pitch that is comprehensive in all aspects of the organization that is being proposed for funding. Here is the list of things that the pitch needs to contain:

  • Business Model
  • Entrepreneur’s background
  • The revenue models the company will use
  • Projected sales
  • Projected profit
  • An estimate of sustainable growth

There are multiple organizations, like the National Small Industries Corporation (NSIC) or the State oriented Financial Corporations that will entertain your pitch for your business initiative. However, your secondary consideration while applying for a loan with these organization should be on the documentation of the following items:

  • Proof of ownership – In case you are planning your venture in your own property)
  • Report on the availability of building/land – In case the property needs to be acquired with the help of the bank)
  • Proof of residence – A document to prove the applicant’s residential status
  • Company registration certificate – Refers to the permission given by the state government to the purpose of forming a company or corporation
  • Individual IT returns for 3 years – This is for companies that have been in business for over a year. A complete statement of earning should be presented with details on tax liabilities and various sources of income.
  • Provisional Balance Sheet – A financial document that is an accurate representation of a company’s current monetary situation is also an integral part of this procedure.

The right business proposals will have exhaustive details about the kind of profits the business can realistically expect. This should be calculated with reference to market forces and consumer trends. A well-constructed project report with realistic assertions about the viability of your proposed project can also boost your chances for funding. In hindsight, the inflexible eligibility criteria financial institutions keep would be adverse for small SMEs that is trying to just keep their head above water. The hazardous timeframes these loans demand just for approval also does a disservice for SME needs.

This is why KredX offers collateral free working capital access to funds in 24 to 48 hours through invoice discounting. Often, the disservice that is red tape would mean long standby periods which can prove disastrous for your business ventures. KredX solves these problems by providing you access to funds with the most minimal documentation, and the least stress.  These collateral free loans can be a big lift for your business ambitions and help expand or bring about your dream projects.