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Ways for Availing Collateral Free Working Capital Loans for New Business

Ways for Availing Collateral Free Working Capital Loans for New Business

India is emerging as the largest startup hub in the world. These growing businesses are the backbone of the Indian economy. 

The youth with their innovative skills are turning out to be shining entrepreneurs hence making the nation self-reliant and contributing to creating employment for others. 

But when it comes to starting a new business, it is quintessential to have financial backing. The fund is the primary requirement for any business to foster and remain firm in the market. Enough funds help the business to buy assets and provide service to the needy. 

As a new business owner one will certainly go around availing of the collateral-free working capital loan. Therefore, by the end of this article, you will understand the meaning and importance of working capital. 

Also, we will let you know how you can avail the collateral-free working capital loan for your business.

Let’s get started!

WORKING CAPITAL 

Working capital is a parameter that indicates the short-term financial position that measures the overall efficiency of a firm. It is calculated by subtracting current liabilities from current assets and finally listing it in the balance sheet.

Wherein the Current Assets are the money in the bank and assets that can be converted into cash in the case at any point in time. 

Whereas Current liabilities represent debt that an individual will have to pay within the stipulated period. 

Hence, working capital is the money left after subtracting liabilities from an individual’s money in the bank.

Current assets comprise- cash, accounts receivable, and inventory

Current liabilities include taxes, interest owed, and wages. 

Working Capital can also be used alternatively to indicate the business’s financial health

In instances of a business owing more than what it owns, it will have negative working capital, and its business may come on the brink of a shutdown.

ESSENTIALITY OF WORKING CAPITAL

For meeting all the operations related to the business, it is crucial to have working capital. Following are some of the major importance of Working Capital for a seamless operation of a business:

  • Meeting short-term obligation
  • Paying employees 
  • Paying Tax 
  • Expanding business
  • For covering liabilities

HOW TO GET A COLLATERAL FREE WORKING CAPITAL LOAN?

Before we get into the details of availing collateral-free working capital loans for your new business, let us first understand a bit about collateral. 

Collateral is the tangible possessions, valuables, assets, properties, or kept as security by finance institutions while providing loans.

While providing loans to the customers, banks expect some sort of security source from the borrower. In case the borrower fails to repay the money on time, the lender has the legal right to seize the collateral. This is the reason banks ask for collateral while availing the loans.

Lately, many banks and financial institutions have started offering no collateral business loans. This means that these financial institutions will not ask the business owners for any guarantee source. 

In order to qualify for a collateral-free working capital loan for your business, you will have to meet certain eligibility criteria. But don’t worry, they are easy to obtain and have low documentation procedures.

GOVERNMENT SCHEMES FOR AVAILING COLLATERAL FREE LOAN

The Government of India has some important schemes for businesses to get collateral-free loans. 

Following are some of the schemes are may help you avail yourself the loans without any security:

  • MUDRA Loan under PMMY
  • Credit Guarantee Scheme
  • Bank Credit Facilitation Scheme
  • Coir Udyami Yojana
  • Stand-Up India Scheme

OTHER WAYS TO ESTABLISH BUSINESS WITHOUT COLLATERAL

Apart from the above mentioned schemes of government, there are other ways too by which you can obtain collateral-free working capital loans for nurturing your new business.

We have explained a few of them below.

Small Business Credit Cards

Small business credit cards are one of the resources which can help you with availing the Collateral Free Loans.

 If a business owner has a good CIBIL score then he can apply for business credit cards. The exclusive features of these cards can help you in cost-cutting. It also helps in saving money that can be used later on, for expanding your business.

Machinery Financing

It enables you to set up machinery and start producing goods without paying the full amount.

External Fundings

You may also reach out to private lenders who can lend you collateral-free working capital loans.

Line of Credit

There are many banking and non-banking institutions which provide that amount of loan which is required for the business rather than taking the full amount. 

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