Collateral-free loans provide businesses with the necessary capital without requiring them to pledge any collateral. These types of loans are gaining popularity among businesses as they are particularly helpful for new entrepreneurs who are starting out and need financial support. 

What are collateral free loans for business?

A collateral-free loan is a type of loan that does not require a business to pledge any asset as collateral or security against the loan amount. This means that businesses can obtain the loan without having to provide any guarantee in the form of assets, such as property, stocks, or other valuables. 

Instead, the loan is granted based on the businesses’ creditworthiness and other factors such as their business plan, financial statements, and credit score. Collateral-free loans are popular among small business owners and entrepreneurs who may not have sufficient assets to pledge as collateral.


​​Types of collateral free loans for businesses

There are several types of collateral-free loans available for businesses, including:

1. Unsecured business loans: These loans are granted without any collateral or security and are based on the creditworthiness of the borrower.

2. Business credit cards: These are revolving lines of credit that businesses can use to make purchases, pay bills, and manage cash flow without any collateral.

3. Invoice financing: In this type of loan, the lender advances money to the business based on the value of its outstanding invoices, without requiring any collateral.

4. Merchant cash advance: This type of loan is granted based on the borrower’s credit card sales and does not require collateral.

5. Micro loans: These are small loans granted to businesses with limited credit history and are usually backed by government agencies or non-profit organisations.

6. Personal loans for business purposes: Some lenders offer personal loans that can be used for business purposes without requiring collateral.

Features of collateral free loans for business

Collateral-free loans for businesses have several features, including:

1. No collateral requirement: As the name suggests, these loans do not require the borrower to provide any asset as collateral or security.

2. Based on creditworthiness: Collateral-free loans are typically granted based on the creditworthiness of the borrower, which includes factors such as credit score, income, and financial statements.

3. Shorter repayment terms: Collateral-free loans typically have shorter repayment terms compared to secured loans, which can range from a few months to a few years.

4. Faster approval process: Collateral-free loans usually have a faster approval process compared to secured loans since there is no need to evaluate the collateral provided by the borrower.

Benefits of collateral free loans 

There are several benefits of a collateral-free business loan, including:

  1. No risk to assets: A collateral-free loan allows businesses to obtain funding without having to put up any assets as collateral, which means they do not have to risk losing valuable assets in case of default.
  2. Easier to obtain: Collateral-free loans are generally easier to obtain than secured loans since they do not require an evaluation of collateral, making the loan application process quicker and simpler.
  3. Suitable for new businesses: Collateral-free loans are particularly helpful for new businesses that may not have sufficient assets to put up as collateral, giving them access to much-needed funding.
  4. Flexible use of funds: Since collateral-free loans are not tied to specific assets, businesses can use the funds as per their discretion, such as for working capital, equipment purchase, or expansion plans.
  5. Faster approval and disbursement: Since collateral-free loans require less documentation and evaluation, they are usually approved and disbursed faster, allowing businesses to access funds quickly.
  6. Helps build credit: By obtaining and repaying a collateral-free loan on time, businesses can build a positive credit history, which can be helpful in obtaining future loans.

Collateral free loans from Razorpay Line of Credit 

Razorpay is a digital payments and financial services company that offers a collateral-free business loan through its Line of Credit product. The loan is granted based on the businesses’ creditworthiness, cash flow, and performance, without requiring any collateral or security. 

Businesses can apply for a line of credit up to Rs. 25 lakhs, which they can use to manage working capital, purchase inventory, or expand their operations. The loan comes with flexible repayment options and competitive interest rates, making it an attractive option for small and medium-sized businesses. 

Razorpay Line of Credit offers a quick and easy way for businesses to access much-needed funds without the hassle of providing collateral.

Frequently Asked Questions:

1. What are the documents required to avail Razorpay Line of Credit?

Here are the documents that are necessary to obtain Razorpay Line of Credit: 

  • Bank statement of your primary bank account
  • Major shareholder KYC documents
  • Business KYC documents

2. Which businesses should apply for collateral free loans?

Collateral free loans are particularly helpful for small and medium-sized businesses that may not have a long credit history or have low credit scores, as these loans are often granted based on the creditworthiness of the borrower. Startups and new businesses may also benefit from collateral-free loans as they can obtain funding without having to put up assets as collateral.


Ashmita Roy is an Assistant Marketing Manager at Razorpay. When she’s not working, you can find her strumming her guitar or writing poetry. Dislikes writing about herself in third person, but can be convinced to do so via pizza or cheesecakes.

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