Loan for Business

A Guide on MSME Loan without Collateral

By Tata Capital
08 January 2026
10 mins read
2789

The Ministry of Micro, Small, & Medium Enterprises (M/o MSME) has provided data that there are approximately 6.3 crore MSMEs in the country, contributing 29% to India’s GDP. Therefore, experts suggest that reviving and improving the economy highly depends on the MSME sector. That is why, with the encouragement of the Indian government, there are now various loans for MSMEs without collateral to drive the growth of this sector. So here is a handy guide if you want to know how to secure an MSME no-collateral loan.

What is an MSME Loan Without Collateral?

A loan to MSME without collateral means that a business loan is offered to a business that falls within the Micro, Small, & Medium Enterprises sector, without the business needing to pledge collateral. In other words, it is an unsecured business loan.

5 Ways to Secure an MSME Loan Without Collateral

You can secure an MSME no-collateral loan by applying to financial institutions under the following loans or schemes:

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme provides an MSME loan without security up to Rs 10 lakh without the requirement of collateral.
The Pradhan Mantri MUDRA Yojana offers unsecured business loans to MSMEs, individuals, and professionals up to Rs 10 lakh.
The Stand-Up India Scheme facilitates bank loans to at least one woman and at least one Scheduled Tribe (ST), or Scheduled Caste (SC) borrower per bank for setting up greenfield enterprises.
MSME loans in 59 minutes is a scheme where MSMEs can apply for unsecured business loans up to Rs 5 crore through an online portal called PSB Loans in 59 minutes.

Non-banking Financial Companies (NBFCs) offer loans for MSMEs without collateral at competitive terms and conditions and perhaps the quickest turnaround time.

Benefits of an MSME loan Without Collateral

The biggest benefit is that MSMEs can get collateral-free credit without providing security or collateral.
Easy eligibility requirements with minimal documentation make it a convenient way to either start or expand your business.
With minimal documentation and no collateral requirement, the disbursement of an MSME loan without security is quick and easy.
Collateral-free MSME loans offer great flexibility regarding repayment tenures, interest rates, and loan amounts.
The paperless and convenient loan application process allows you to apply for the loan online and track your application online.
It helps build a valuable credit history for the applicant so long as you pay the EMIs on time.

Top Collateral-Free MSME Loan Schemes in India

Collateral-free MSME loans are a great option for small businesses looking to grow without pledging assets. These loans are ideal for business owners who lack property or large financial backing but want to expand operations, purchase machinery, or manage working capital. Here are some of the most popular collateral-free MSME loan options available in India-

Loans under the CGTMSE scheme

Under the government initiative of the CGTMSE scheme, you get collateral-free term loans and working capital loans up to Rs 10 lakh. There is a guarantee cover of up to 75% of the sanctioned loan amount. If you are a woman or based in the North-East region of India, the coverage goes up to 80%. The interest rate starts from 7.5%. The loan can be used to purchase assets such as machinery and equipment. The bank decides the repayment tenure, subject to a maximum term of 10 years.

MUDRA loans

Micro Units Development and Refinance Agency or MUDRA is a government initiative where you can get an MSME loan without security for a small non-farming related business. The types of loans available include working capital loans, term loans, and hybrid term loan facilities. The interest rate will be dependent on your profile and business requirements. The repayment tenure under the MUDRA scheme ranges from one to five years. Under MUDRA, the MSME loan limit without collateral is categorised under three headings as follows:

Shishu – loans up to Rs 50,000 ideally for start-ups
Kishor – loans starting from Rs 50,001 to Rs 5,00,000
Tarun – loans starting from 5,00,001 to Rs 10,00,000

Stand-Up India Scheme loans

If you are a woman entrepreneur or belong to a Scheduled Caste Scheduled Tribe, you may be eligible for Stand-Up India loans. These loans are to be used for setting up greenfield enterprises in manufacturing, services, trading, or agri-allied activities and sectors. The loan amount available is between Rs 10 lakh and Rs 1 crore. The interest rate is 5.5%, with a repayment tenure of 7 years.

MSME loans in 59 minutes

This scheme offers emergency credit to MSMEs, allowing MSMEs to apply for loans in minutes under the portal. Collateral-free loans are provided under the CGTMSE scheme. The interest rate offered starts from 8.5%. The in-principle loan amount ranges from Rs 10 lakh to Rs 5 crore. The loan can purchase machinery, infrastructure development, business diversification, and more. The repayment tenure goes from 1 year to 15 years.

The fintech portal links the applicant with various banks. However, the in-principle amount is subject to approval by the lending bank and is no credit guarantee.

NBFC loans for MSME without collateral

NBFCs can provide you with an MSME loan without security. These loans can be used to expand technology, manpower, infrastructure, working capital, and more. MSMEs often prefer collateral-free loans from NBFCs as their eligibility requirements are pretty lenient. Moreover, the documentation required is minimal, and the processing time is quick. An advantage of these loans is that you do not need to register under any scheme to avail of them, so disbursal is fast. NBFCs may also allow you to structure your repayment around your business’s cash flow. The loan amount varies and may depend on the business’s size. Loan tenures usually range from one year to three years. Interest rates are also competitive.

MSME Loan Eligibility Criteria Without Collateral

Under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Scheme, eligible borrowers include new and existing micro, small, and medium enterprises engaged in manufacturing activities.

This scheme covers all activities under the service sector as per MSMED Act 2006, excluding-

Retail trade
Self-help groups
Education institutions
Training institutions
Selected NBFCs

Required Documents for Collateral-Free MSME Loan

To apply for a collateral-free MSME loan, you need to submit some basic documents related to your identity, business, and finances.

Here’s what most lenders ask for:

Filled and signed loan application form
Passport-size photos of all applicants
Identity proof like PAN, Aadhaar, passport, voter ID, or driving licence
Residential address proof such as passport, electricity bill, ration card, Aadhaar, or driving licence
Business address proof like trade licence, utility bill, or lease agreement
Proof of age for all applicants
A detailed business plan
Bank statement for the last 6 months
Income proof including ITR, profit and loss account, and balance sheet
Business registration documents like partnership deed, MoA, AoA, licences, rent agreement, or MSME certificate

Fees and Charges

Eligible borrowers under the CGTMSE Scheme have to pay a guarantee fee of 1% per annum of the sanctioned loan amount, as follows-

Slab	Standard Rate (p.a)
0-10 lakhs	0.37%
Above 10 lakhs but up to 50 lakhs	0.55%
Above 50 lakhs but up to 1 crore	0.60%
Above 1 crore but up to 2 crores	1.20%
Above 2 crores but up to 5 crores	1.35%

Tips to Improve Loan Approval Chances for MSMEs

Some ways to increase your chances of loan approval are-

Keep your credit score above 750 to show you’re reliable with repayments.
Make sure all your documents are correct and up to date.
A steady income helps build trust with lenders.
Try to reduce your existing EMIs or loans before applying.
Always clear your bills and credit card dues on time.
Review your credit report and correct any errors.
Select a loan amount and tenure that suits your income.

What is the maximum loan amount I can get without collateral?

The maximum loan amount you can get without collateral differs with each lender. At Tata Capital, the MSME loan limit without collateral is Rs 90 Lakhs, across a maximum tenure of 60 months.

Step-by-Step Application Process for Collateral-Free MSME Loans

The application process for a collateral free business loan differs with lender. That said, here are the steps that are typically involved when you apply for an MSME collateral free loan online:

Step 1: Visit the official website of your chosen lender. Here, click on ‘apply for a business loan’, or an equivalent option, to kickstart the process for your collateral free loan for MSME.

Step 2: Next, create an account or log in.

Step 3: Fill out the online application form with your personal and business details. This is the step where you must specify your MSME loan limit without collateral.

Step 4: Upload all necessary documents and follow the instructions on your screen to complete your MSME collateral free loan application.

And that’s it! You will be notified once your application has been approved.

Comparing Interest Rates for Collateral-Free MSME Loans

Here is a quick comparison of interest rate for an MSME collateral free loan across lenders:

Lender	Interest Rate (p.a)
Tata Capital	12% onwards
Mahindra Finance	6% onwards
State Bank of India	7.25% onwards
Punjab National Bank	9.25% onwards
Union Bank of India	7.60% onwards

Be sure to check your chosen lender’s website to confirm the interest rate bracket for your collateral free business loan.

Common Mistakes to Avoid When Applying for Collateral-Free Loans

Here are some of the common mistakes you should avoid when applying for your collateral free loan for MSME:

Submitting incomplete or inaccurate documentation: Missing KYC papers, outdated financial statements, or inconsistent income details can delay approval or lead to the rejection of your collateral free loan for MSME.
Ignoring credit score and repayment history: Lenders closely assess personal and business credit behaviour. Applying without reviewing or improving your credit profile reduces eligibility for an MSME collateral free loan.
Overestimating eligibility: Many applicants assume they can access high funding amounts without assessing the MSME loan limit without collateral, which depends on turnover, cash flow stability, and past repayment patterns.
Lack of a clear business purpose: Not clearly explaining how funds will be used weakens your application. A well-defined usage plan improves lender confidence in a collateral free business loan.
Overlooking loan terms and costs: Focusing only on approval speed while ignoring interest rates, processing fees, and repayment tenure can strain cash flows later.
Poor financial planning: Applying without assessing EMI affordability or future cash flow can lead to repayment challenges and long-term credit issues.

How Long Does Collateral-Free MSME Loan Approval Take?

If you apply for a collateral free business loan under the MSME loans in 59 minutes scheme, you can get your loan approved within an hour. However, if you choose a lender, the time it takes to approve your collateral free loan for MSME will depend on their processes and policies.

Conclusion

Loans for MSMEs without collateral offer many benefits to start-ups and established MSMEs. So, if you require an MSME loan, don’t worry about needing to provide any security or collateral. You can establish your start-up or expand your business without needing to pledge your assets. If you need a quick and convenient business loan, you can avail of a collateral-free MSME loan from Tata Capital.

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FAQs

Can I get a loan without collateral?

Yes, businesses within the Micro, Small, and Medium Enterprises sector can get an MSME loan without pledging collateral under various government schemes.

How much of a loan can I take without collateral?

The unsecured loan amount you can avail yourself of as an MSME depends on the government scheme you're applying for. For instance, under the Credit Guarantee Trust Fund for Micro and Small Enterprises (CGTMSE) scheme, MSME businesses can get an unsecured loan of up to Rs. 10 lakhs.

What is the maximum amount for a collateral-free loan?

The maximum amount of collateral-free loan you are eligible for depends on the MSME loan scheme you're applying for. For instance, under the MSME loans in 59 minutes scheme, eligible businesses can apply for an unsecured business loan of up to Rs. 5 crores. Please check the relevant product page for relevant information.

Can I get ₹20 lakhs MSME loan without collateral?

You may get a INR 20 lakh MSME loan without collateral under the CGTMSE scheme, which provides credit guarantees to banks. Final approval depends on your eligibility, loan purpose, and the lender’s assessment. MUDRA loans, however, offer up to INR 10 lakh only.

Can I get a CGTMSE loan without collateral?

CGTMSE loans are meant to be collateral-free. The scheme offers credit guarantees for loans up to INR 5 crore to eligible micro and small businesses. However, approval depends on the lending institution’s evaluation of your business profile and repayment capacity.

How quickly can I get a collateral-free MSME loan?

Under the MSME loans in 59 minutes scheme, you can get your MSME collateral free loan within an hour. With a lender, the time can depend on their internal processes and policies.

What credit score is required for collateral-free MSME loans?

Most lenders prefer a credit score of 650 or above for collateral free business loans. A higher score can improve approval chances, interest rates, and eligible loan amounts.

Can foreign nationals apply for collateral-free MSME loans in India?

No, foreign nationals cannot apply for a collateral free business loan for MSME.

Are there any hidden fees for collateral-free MSME loans?

Most collateral free MSME loan providers are transparent, but borrowers should check for processing fees, documentation charges, and prepayment penalties mentioned in the loan agreement to avoid unexpected costs.

What is the maximum loan amount I can get without collateral?

The MSME loan limit without collateral varies based on your business turnover, credit profile, and lender policies. Tata Capital offers collateral free business loans of up to Rs 90 lakhs.

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A Guide on MSME Loan without Collateral

What is an MSME Loan Without Collateral?

5 Ways to Secure an MSME Loan Without Collateral

Benefits of an MSME loan Without Collateral

Top Collateral-Free MSME Loan Schemes in India

Loans under the CGTMSE scheme

MUDRA loans

Stand-Up India Scheme loans

MSME loans in 59 minutes

NBFC loans for MSME without collateral

MSME Loan Eligibility Criteria Without Collateral

Required Documents for Collateral-Free MSME Loan

Fees and Charges

Tips to Improve Loan Approval Chances for MSMEs

What is the maximum loan amount I can get without collateral?

Step-by-Step Application Process for Collateral-Free MSME Loans

Comparing Interest Rates for Collateral-Free MSME Loans

Common Mistakes to Avoid When Applying for Collateral-Free Loans

How Long Does Collateral-Free MSME Loan Approval Take?

Conclusion

FAQs

Can I get a loan without collateral?

How much of a loan can I take without collateral?

What is the maximum amount for a collateral-free loan?

Can I get ₹20 lakhs MSME loan without collateral?

Can I get a CGTMSE loan without collateral?

How quickly can I get a collateral-free MSME loan?

What credit score is required for collateral-free MSME loans?

Can foreign nationals apply for collateral-free MSME loans in India?

Are there any hidden fees for collateral-free MSME loans?

What is the maximum loan amount I can get without collateral?

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