Collateral free loans are growing exceedingly popular, especially after the COVID-19 outbreak. Unlike before, these unsecured loans offer reasonable interest rates and flexible repayment options. 

According to a survey, nearly 70% of Indian businesses have applied for collateral free loans this year.  Let’s understand why. 

What is a collateral free loan

A collateral free loan is provided by a bank or a fintech body to the borrower without any guarantee or pledge. In simple terms, this means, a business can approach a lender and borrow money from them at a certain rate of interest even without collateral.

A ‘collateral’ is an asset or a valuable item one pledges against taking a loan. On repaying the loan, the collateral is repossessed. And, if the borrower fails to repay the loan, the collateral is retained by the lender.

The need for collateral free loans

Considering the evolving needs of businesses, we can say that the traditional banking models are significantly behind. Many small and medium sized businesses that apply for loans don’t pass the eligibility criteria.

This has created somewhat of a gap in the overall experience for businesses that have to borrow from banks.

Banks need collaterals to vet these businesses, which at that point in time, businesses simply can’t afford. Loans also take prolonged periods to get approved. The fate of a business can depend on loan approval time, too. 

This ends up creating a lot of unnecessary anxiety for borrowing businesses. This is exactly when they turn towards other lenders that provide instant working capital. Collateral free loans are mostly required by business owners or entrepreneurs of SMEs.

The pandemic knocked out a lot of SMEs, putting their efforts of revival on hold. But, all is not lost yet. Collateral free loans are helping these businesses get back on track. 

Benefits of collateral free loans



Collateral free loans are especially beneficial to businesses that lack the credit score, and not eligible for loans through traditional lenders. 

Some of the major benefits include,

  • No collateral or third party guarantee needed
  • Attractive and competitive rates of interest
  • Flexible repayment tenures and options
  • Quick and hassle-free processing of applications, since approvals are done automatically by the credit decisioning system

How Razorpay is helping businesses

Razorpay understands where businesses need help and bridges the gap between what a business expects and what banks offer.

Razorpay Capital

Razorpay Capital offers loans for businesses without collateral, at competitive rates. Businesses no longer have to wait long periods of time for loans to get approved. Since the whole loan application process is online, the turnaround time is very short. 

Loan repayments are very flexible too! Businesses can choose to pay in instalments on a daily, weekly, or monthly basis.  

Working Capital Loans

Now you can get collateral-free business loans in a day’s time. Razorpay Working Capital Loan is designed to meet the short-term working capital requirements of MSMEs such as salaries, infrastructure overheads, procurement of raw materials and much more. Razorpay has built this non-collateral based financing process to revamp the traditional processes and bridge the MSME credit demand-supply gap. 


Cash Advance

Razorpay Cash Advance offers the convenience of an unsecured loan to manage cash requirements prior to customer payments. Businesses can withdraw cash up to their credit limit, repay when customers pay and borrow again when they need more funds.

Razorpay’s Alternative Credit Decisioning System pre-approves businesses based on their past customer transactions. They can pay interest only on the amount for the duration of the withdrawal. Businesses can also repay their loans automatically through settlements.


Line of Credit 

Razorpay Line of Credit makes it convenient for your business to get instant access to an unsecured line of credit and manage your cash requirements at all times, especially when faced with an unexpected demand.

Here are a few benefits you can enjoy with Razorpay Line of Credit:

  • Line set up in just 2 business days with 24*7 cash withdrawals
  • No collateral. No hidden charges. No pre closure fees
  • Interest rates starting at 1.5% per month
  • Pay only on what you use & save on interest by repaying early
    For example: If you withdraw INR 100,000 at 1.5% and repay in 20 days, you pay only INR 1000 as interest
  • Get 100% flexibility & repay in easy EMIs or manually from Line of credit dashboard; use your line again without a new application for every withdrawal.



Harshitha is a marketer at the future-forward RazorpayX. She has an insatiable love for travel and culture, rock music, and the work of Neil Gaiman.

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