A startup business loan can be taken by individuals who want to start a new business, or existing businesses looking to expand current operations. Startups looking to get such a loan should ensure the following:
Startup business loans are of two types –
A startup business loan in the form of a line of credit works in a similar manner to a credit card. However, the card is tied to the individual’s business instead of their personal credit. One of the best benefits of a small business line of credit is that customers will have no obligation to pay interest on the borrowed sum for the first nine to 15 months, thereby making it easier to cover expenses whilst getting their business to a good start. The interest after the period will rise to anywhere between 7.9% and 19.9%, but the customer will only have to pay interest on the sum they use (similar to a credit card).
In this type of loan for start-ups, the equipment that is bought when starting the business is pledged as collateral, thus enabling the lender to charge a relatively low rate of interest with a slightly higher risk. The customer is expected to repay the amount used to purchase the equipment as revenues are generated from their business. Similar to a line of credit, applicants are expected to have a high credit score (680+), and the documents required to avail equipment financing include a vendor quote, a detailed credit report, and a statement showing the manner in which the customer intends to utilise the equipment. The main benefit of equipment financing is that the depreciation of the equipment can be used by the customer as a tax benefit for many years.
There are more than 39,000 startups in India at present who have access to many private equity and debt funding options. However, it is a challenge to get funding when the business is just an idea or is in the early stage. Also, the Micro, Small, and Medium Enterprises (MSME) sector in India only has limited access to formal credit which is why the Government of India decided to roll out startup business loan schemes for MSMEs and startups.
The Small Industries Development Bank of India (SIDBI) has also begun lending to startups and MSMEs directly rather than channelising it through banks. The interest rates on these loans are lower than the one offered by banks by almost 300 basis points. Some of the most notable and popular schemes offered by the Indian government for startups and MSMEs are as follows:
The eligibility criteria to avail startup business loans may vary from lender to lender but the generic ones have been listed below:
| Photographs | 2 copies (passport-size) |
| Proof of Identity | PAN Card, Passport, Aadhaar Card, Voter’s ID, Driving License |
| Address Proof | Passport, Driving License, Aadhaar Card, Postpaid Phone Bill, Voter’s ID |
| Age Proof | Passport, PAN Card |
| Bank Statements | Last six months |
| Proof of Income | Income Tax Returns, Salary Slips, |
| Signature Proof | Bank verified signature, PAN Card, Passport |
| IFSC Code Proof | Cancelled/scanned cheque, copy of passbook’s front page of the same bank account |
Applying for startup business loans is simple, quick, and hassle-free. Many financial institutions and banks have enabled online application for applicants to take advantage of. All they need to do is visit the official website of the lenders, fill up the form provided, and upload a few documents. Then there is an option of visiting the nearest branch of the lender and submitting the application form and documents in the physical form. Once the details and the verification are complete, the applicants will receive the loan amount directly into their bank accounts.
There are two types of business loans that lenders offer for you to choose from – term loans and working capital loans. Term loans can be used for expansion of business, purchasing machinery, and launching new projects. These loans can be taken for a period ranging between 1 year and 10 years. Working capital loans, on the other hand, are short term loans that have to be repaid within a year and can be used to pay rent, pay employees’ salaries, stock up inventories, etc.
To avail a startup business loan, your startup should be a new firm or under 5 years old. Also, the firm’s yearly turnover should not be more than Rs.25 crore.
The maximum amount of loan that can be availed will depend on the lender and other factors such as the annual turnover of the company, your credit history, etc. For example, under the Mudra Loan, up to Rs.10 lakh can be availed under a startup business loan.
Yes. Most lenders will ask you for a business plan when you apply for a startup business loan. Ensure that the business plan is clear and detailed with the business objectives and goals outlined. The business plan should also clearly state how the loan is going to be used.
Many lenders in India offer startup business loans and some of these are – HDFC Bank, Bank of Baroda, Citi Bank, ICICI Bank, and State Bank of India.
Yes, there are government loans that you can avail for your startup business. Some of the government loans you can avail are:
