How to Get a Loan for SME without Collateral 2023

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How to Get a Loan for SME Without Collateral

Running small and medium businesses come with plenty of risks, especially financial risks. In most cases, the money you started with will seem to have disappeared to an unknown place. This is simply a result of not having sufficient finance for the business. No business grows without funds. For this reason, the little money you have will not grow your business.

Like the way human body needs healthy food to function well, every business needs much funds to flourish. Therefore, getting a loan for your SME will help see the growth of your business beyond expectations. This type of loan becomes very appealing when you can get it without any collateral.

One will be asking if it is possible to get a loan for SME without collateral. Well, the answer is YES. It is entirely possible and we are going to make it very clear here.

But before we move further, let’s talk about the meaning of SME loans

What is Loan for SME?

SME is a short name for Small and Medium enterprises. Loan for SME can be seen as short-term business loans prepared for someone who is into a business or intending to start a business but has insufficient fund.

SME loans are regularly given by banks, credit associations, and other monetary establishments. It tends to be utilized for various purposes like beginning a business, growing tasks, buying hardware or stock, or covering working costs. Then, again, taking advances for SMEs might permit an increment or decline in view of the monetary state of the organization. Likewise, it might permit installments for intermittent installment.

The valuable advantages an individual are advances for SMEs and the financing costs for the SME loans will generally be lower, particularly on account of government-supported plans. SME credits are normally intended for public government assistance.

Recently, many businesses have collapsed due to bankruptcy and poor maintenance. Therefore, for your business to grow, there will be need to get a loan, mostly one that doesn’t require collateral.

Loan for SME

What is collateral?

Collateral acts as security for the lender if you default on the loan and can’t pay it back for any reason. If your business is short on assets that could be pledged as security, getting a no-collateral business loan may be your top priority

Meanwhile, applying for a Loan for SME offers your business an edge over your competitors, especially, in third-world countries. It also saves you from loan sharks because you will get a small business loan and also receive guardians that will help you flourish.

Getting a loan for SMEs without collateral is not a difficult task. For this reason, this article is aimed to direct you on how to get a loan without collateral.

Can you apply for a loan online?

Indeed, you can. Numerous banks give you the chance to apply for SME loans on the internet without stepping foot in the bank. You are supposed to visit their website and quest for the SME loan segment. Subsequent to going through the loan subtleties and qualification rules, click on the ‘Apply Currently’ button. Attempt to give all the substantial information requested. Then, wait for the bank agent to contact you for further financial information and a conclusion that will lead to you receiving the fund.

Who is Eligible for an SME loan?

Every business person is qualified for a loan.

However, you must be in a particular business like agriculture and food processing, automobiles, or even trading. This is what will give the bank or lender the hope that the money is to be invested in a business, not otherwise. To apply for a loan for SME, your business must have lasted for a certain period of time, and should have received a profit during the preceding year.

 

Can you Get a Loan for SME if you don’t have Collateral?

Yes is the answer. In some organizations (such as banks) you don’t need to provide collateral to get a loan for SME. All you need to do is to do proper research and follow the right principles. Since SMEs provide huge employment opportunities at relatively lower capital costs and also provide assistance in the industrialization of backward and rural areas at the same time; to ease the process, they accept taking loans without collateral.

In some countries, government makes provisions for SME loans with no collateral.  

Why are SME loans preferable?

Any activity that involves the production, sales, or transportation of any kind of good or service requires finance. One has to seek financial aid to set things in motion. This is why loans for SME are commendable.

Therefore, here’s how an SME loan can be beneficial for you and your business in the long run.   

  • Low-interest.
  • Simple to avail.
  • Flexibility
  • Simple and quick repayment.
  • Helps your business grow.

Little or no documentation requirements

 

1.   Low-Interest Rates

One of the reasons business owners prefer getting loans for SMEs is because their interest rate is cheap. However,  apart from banks, numerous financial institutions can assist you with funding for your business. They are always willing to offer low or competitive interest rates. These companies provide business loans at a very pocket-friendly rate. Plus no hidden costs or processing charges. SME loans are inclusive.

 

1.   Simple To Avail

Almost every bank and other private financial institutions give out a loan for SMEs without any collateral. This alone makes it all the more convenient for business owners and entrepreneurs to avail of it. Plus, available online applications. Making it simple for people to apply even without visiting the bank or any financial institution.

2.   Flexibility

Since the competition between lending institutions and banks has become more fierce, you can anticipate them to offer you some great offers. So, most of these financial services, especially those that the government schemes are backing, provide various terms and interest rates as per your business needs. So if you want to begin, expand, or explore, you can get a customized SME loan for your business. The return policies are flexible. The repayment time and the interest rates are based on the following: the nature of your business, the amount lent, tenure, and the scope of your financial returns.

3.   Simple And Quick Repayment

As earlier insinuated, the entire loan processing scheme is flexible. For this reason, it is reflected in the repayment options as well. Banks and other private companies have become more accommodating. They comprehend the struggles and the risk of setting up a new business, enhancing it, or even growing it. They now voluntarily provide various repayment modes based on the cash inflow and success of your business. You can select from any of these options.

4.   Helps Grow Your Business

Arguably, if you have sorted the finances, you can concentrate on work. You can expand, start and grow your business the way you want. The money is now available to promote your business to any level you like.

5.   Little or no documentation requirements

The last reason people find getting a loan for SMEs is that it requires little or no documents. You don’t have to run around looking for many documents before your loan application is granted.

Fees and Interest Rates Applicable for SME loans

The processing fee depends on the lenders which are offering the SME loans. Try to select the lender who provides the loan at a pocket-friendly processing fee.

However, the interest rate may vary depending on the loan scheme you want as well as the financial institution. The lender may also assess important factors which include the collateral provision, loan amount, tenure, and the applicant’s creditworthiness, repayment capacity, as well as other existing loans.

Which Nigerian bank offers Loans for SMEs without Collateral?

However, below are some of the banks that offer loans for SMEs without collateral as seen on their websites.

Which bank is SME-friendly in Nigeria?

According to research, Fidelity Bank Plc has been confirmed as the best SME Bank in Nigeria by the Global Finance Banking & Finance Awards 2022. It is one of Nigeria’s foremost financial institutions. The bank has added yet another accolade to its burgeoning collection of awards.

What are the Eligible Criteria for SME loans?

Getting a loan for SMEs is very quick and simple. But there are some criteria you need to keep in mind before you get a loan for SME.

  • You must have a business.
  • The applicant must have a minimum of three years of business experience.
  • The applicant must be between 25 to 55 years.
  • The applicant must provide evidence that shows at least the past year’s business IT returns.

How to get SME Loans?

Getting an SME loan is not something you can visit anywhere. You need to follow some step-by-step guide which includes:

  • Sign up to ALAT (New users)
  • Login to ALAT
  • From the icons on the menu, click on loans.
  • Select “SME Loan” from the loan options.
  • Fill in the necessary details about your SME.
  • Wait for your loan to be approved.

What are the Requirements for getting SME loans?

Below are what you are expected to bring before you can apply for loan for SME for your business.

Business/company details

  • Name of the company
  • Date of incorporation
  • Registration address of the company
  • Operating address of the company
  • The contact number of the company
  • E-mail address of the company
  • Industry code
  • Permanent Account Number (PAN)
  • GST number

The Documents Required

  • Bank account details
  • Current loan details if any
  • Parent company/associates/group entity details
  • Annual accounting report with relevant profitability/liquidity-oriented details
  • Personal guarantee letters from directors/partners/promoters
  • Business registration documents
  • Registration certificate of business as SME
  • A copy of sales tax returns filing documents
  • A copy of income tax returns filing documents
  • Any sector-specific licenses, such as drug license in the case of a pharmaceutical enterprise

How to Get a Loan for SME without Collateral

Starting up a business without capital impedes the growth of a business. For this reason, the following are the 5 ways to get a loan for SMEs without collateral.

  • Know your options.
  • Review your business finances.
  • Get a personal guarantee.
  • Know the payback limit.
  • Carefully check the conditions before signing.

1.   Know Your Options

As a business owner, the first step in getting a loan for SME is to require no know which options are available. Truth be told, you can get a loan without collateral but loan terms and approval requirements are distinct from each other.

2.   Review Your Business Financials

Reviewing your business finances as a business owner, small or medium helps to determine whether you are qualified for the loan. As earlier insinuated, you have to run your business for a good three years with profitable experience before you can get a loan for SME without collateral.

3.   Get a Personal Guarantee

You can get a loan for SME without collateral. No doubt! But it doesn’t imply that there is zero condition. You need to get a person who will stand in for you in case you are nowhere to be found; Uniform Commercial Code (UCC) lien preferably.

4.   Know the Payback Limit

Since the loan will be taken without collateral, it is necessary to know when you are expected to pay it back. Also, You need to know how long it will take you to pay the loan off and what your total cost of borrowing adds up to when the interest and fees are factored in. This is done to prevent shutting down your business.

5.   Carefully check the Conditions before Signing.

If you’ve applied for a loan for SME without collateral and have been approved, the last step is comprehending the loan terms and conditions. When reviewing the loan agreement, pay attention to the interest rate, annual percentage rate (APR), payment schedule, and loan term. Luckily, loan for SME don’t charge much interest and don’t require many documents, so the check-up will be simple.

FAQs

Can I close the loan before the slated tenure?

Yes. You can pay off your loan before the scheduled tenue. You have no restrictions.

What kind of entities is eligible for SME loans?

The entities eligible to apply for a loan for SMEs include sole-proprietorship firms, private limited companies, partnership firms, and public limited companies.

What is the purpose of an SME loan?

SME loans are applied for investment, growth, export, and diversification

Final Thought

Getting a loan for SMEs without collateral is very advantageous. This is because SMEs have been giving a massive deal to the country’s economy. Many businesses are growing rapidly due to SME loans. The beneficial part of it is that it has an affordable interest rate.

There are ways to get SME loans without collateral but before you apply for any loan, get the documents ready. Always give your valid information to fasten the approval of your loan.

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