In the beginning, every business needs a certain amount of money and financial strength. When it relates to the establishment of any enterprise, capital is indispensable. In new startup firms, the quantity of capital invested can assist the business become long-running and successful.
In many instances, one may not have easy access to the funds required to start a business. In such instances, a startup business loan is the best option. Startup business loans change by nature and purpose.
You can obtain a startup loan for a new business from a bank or other financial institution to establish a business or expand an existing one. The bank’s interest rate will depend on how much you borrow and how long you have to repay the amount.
Business loans for startup companies by the Indian government
There are already over 39,000 startup companies in India with access to several private debts and equity capital funding opportunities. However, securing funding might be challenging when the business is in its early stages. Because the MSME sectors in India have limited access to good loans, the Indian government has chosen to launch startup business loan facilities for MSMEs and new businesses.
SIDBI has started funding directly to entrepreneurs and MSMEs instead of through banks. These loans have interest rates of about 300 basis points cheaper than those given by banks. Some of the most vital and well-known schemes the Indian government offers to startups and MSMEs are as follows.
Cost of Business Loans in India
|Annual Interest Rate||Up to 21%.|
|Maximum Loan Amount||Up to Rs.75 lakh|
|Duration of loan||Up to 5 years|
|Processing Costs||Up to 6.5% of the total loan amount, plus applicable GST.|
Bank credit facilitation scheme
NSIC started this scheme to fund Indian MSMEs. NSIC has collaborated with government-run and private banks and helps MSMEs get free credit support from these banks. The duration of credit payback depends on the amount of income generated. It varies between 5 and 7 years and can exceed 11 years in specific circumstances.
Pradhan Mantri Mudra Yojana (PMMY)
The (MUDRA) Micro Units Development and Refinance Agency started this initiative in 2015 to provide loans to various manufacturing sectors, trading, and services industries. The scheme provides business loans for a startup in three categories – Shishu, Kishor, and Tarun, ranging from Rs.50,000 to Rs.10 lakh. The Mudra loan is available to artisans, shopkeepers, vegetable dealers, machine operators, and repair firms.
Credit Guarantee Scheme (CGS)
This startup business loan is available to both new and existing MSMEs engaged in manufacturing or service operations; however, educational institutions, agricultural, retail trade, Self-Help Groups (SHGs), etc., are not eligible. Under this initiative, administered by the CGTMSE, it is possible to borrow up to Rs.2 crore.
This initiative, which was started in April 2016 and is administered by SIDBI, provides loans to manufacturing, trading, and service businesses. This scheme offers business startup loans of up to Rs.1 crore. The maximum moratorium time allowed under this plan is 18 months, and repayment can be completed in seven years. Stand Up India is a government initiative aiming to empower SC/ST and women startups in India economically. It also intends to end License Raj and establish Greenfield enterprises.
Scheme for sustainable finance
Renewable and non-renewable energy sectors and those dealing with green and renewable energy are the focus of this SIDBI-led initiative. The government started this programme to help projects for cleaner production, better use of energy, and sustainable development along the value chain.
Using this digital platform, you can apply for a business startup loan. A startup business loan value of up to Rs.10 lakh is available under Mudra Loan Scheme, and Rs.5 crore is available under the MSME Loan Scheme, depending on the eligibility criteria and certain other conditions. In addition, personal loans up to Rs.20 lakh, housing loans amounting to Rs.10 crore, & automobile loans up to Rs.1 crore are also available.
Bank loans for startup businesses
India’s leading banks offer startup loans for new business
- Citi Bank loans for businesses
- Business loans from HDFC Bank
- SBI Loans for Local Businesses
- ICICI loans for businesses
- Bank of Baroda commercial loans
From 1st July 2017, bank products and services will be subject to an 18% GST rate.
Things to consider when applying for a startup business loan
Startups looking for a startup business loan should take the following steps
- Create a clear and comprehensive business plan.
- Specify in your business model how you plan to spend the loan amount.
- Summarise the business’s objectives and goals using a chart showing potential returns and growth.
- Provide an accurate estimate of the funds available.
Eligibility criteria for a business startup loan
A set of requirements must be met before a new business can get a startup business loan. Any startup or business seeking to grow must ensure the following
- The applicant looking for a startup business loan must be at least 21 years old and not more than 65 years old.
- A valid driver’s licence or Aadhaar card is required as proof of identification.
- You should have bank statements from the last six months during the loan negotiations.
- A business plan is required for all applicants.
Required documents for a startup business loan
- Identity proof One can use their driver’s licence, passport, PAN card, voter ID card, and even the Aadhaar card to prove their identity.
- Proof of income Last two years’ bank and financial statements are needed.
- Ownership proof Sole Proprietorship Declarations or certified original copies of Memorandum and Articles of Association are required to verify that the business or startup is raising the funding.
How do you get a startup loan for a new business?
Entrepreneurs can apply for a Startup Businesses Loan through several of the following methods
- Go to the lender’s website, fill out the form, and submit the relevant documents.
- Submit the startup business loan application and documentation at the lender’s branch.
- The lender’s customer service department can assist you with the startup business loan application process.
Features of business startup loan
Most financial institutions offer this type of loan online, as a one-minute application loan, or at their locations. Some of the financial institutions even provide the convenient option of doorstep service.
- A startup loan requires minimum documentation.
- The personal credit history of potential entrepreneurs must be verified.
- Typically, banks do not require collateral or security for business startup loans.
- Interest rates that are competitive but completely dependent on the individual’s credit history
- Ease of repayments and also a flexible repayment schedule
- Banks and other financial organisations provide customers with the added convenience of text messaging, live chats, and other services.
The advantages of a startup business loan
Capital is an essential aspect of every enterprise, so getting a startup business loan can be helpful for a new business or developing business. This also helps everyone, especially women who need a loan to start a business.
- Convenience: Most individuals are familiar with their banking institution and go to the branches regularly. This makes it easier to get startup business loans for new businesses and makes it even more convenient and accessible.
- Interest rate: The interest rate on bank loans is typically lower than that of private equity lenders. There are also tax benefits to choosing a suitable bank loan in India, making it an even more attractive and profitable option.
- Multiple loan options: Larger financial institutions have specific loan options for the new and small enterprises. In addition, banks do not require a share in the business, unlike angel investors. Banks and startup business loan schemes are primarily concerned with credit principles and have no relation to startup or business funding exchange.
Frequently Asked Questions
How can you receive a startup business loan in India with a poor credit score?
Even if a business or startup has a low credit score, it may still be eligible for a loan. However, a higher score is preferable because it enhances the chances that the loan application will be approved.
What kinds of loans are available to assist me in starting a business?
Financial institutions offer two startup business loans for your concern working capital loans and term loans.
What are term loans used for?
Term loans are used for business expansion, the purchase of equipment, and the launch of new initiatives. These loans are available for terms ranging from one to ten years.
What are working capital loans?
Working capital loans are short-term loans that must be recovered within a year and are used to pay expenses, including rent, staff salaries, and inventory.
What will be necessary if a startup has several partners?
If a startup has more than one person serving as the head or as a partner, then a partnership deed needs to be provided to the loan request and the rest of the application and documentation for the loan.
How much time do you have to repay an Indian startup loan scheme
Based on the business's profitability, the repayment time for an Indian startup loan scheme might be as early as six months or as long as four years.
What should one keep in mind while applying for a startup business loan?
- Ensure that you increase your credit score.
- Make sure that the lender you choose for your business loan can provide you with the funding you need.
- Maintain a record of audited financial statements.
How can I boost my chances of securing a business loan?
Avoid submitting multiple loan applications. When applying for a startup business loan, if you have previous loans, you must settle the EMIs.
- Make an application for a loan that you are confident you can pay back on time.
- Ensure that you check your credit score frequently.