How To Get A Business Loan for Startups in India?

More power to you if being an entrepreneur and having your own start-up is your goal. But, for any start-up, the unavailability of start-up capital could be a major setback. Sometimes, even the good start-ups with an effective business model do not reach their potential due to a lack of funds. This is where a start-up business loan can be helpful. 

This article gives you complete details about a business loan for a start-up, its features and benefits, eligibility criteria, documents required and how to apply. Read on!

Features and Benefits of Startup Business Loan 

Some major benefits of startup business loans include the following:

• Convenience and flexibility 
  Depending on the requirement, business owners can avail of a start-up loan for a new business from banks or financial institutions. One can repay the amount monthly at a mutually agreed interest rate. Moreover, business owners can opt for a tenure that they are comfortable with.    
  
  Entrepreneurs can avail working capital loans to meet their operational expenses. Banks can also provide overdraft facilities to help owners withdraw funds from their current accounts. 

• No collateral
  Business loans for start-ups generally do not require borrowers to place any collateral as they are unsecured loans. Furthermore, the application process does not involve any additional payment or security deposits. 

• Choice of tenure
  Business owners can choose their own tenure to repay loans from financial institutions like banks or NBFCs (Non-Banking Financial Company). Instead of choosing a long tenure, they can choose a short tenure to repay their loans. This helps them in getting financial assistance at a lower interest rate. 

• Flexible interest rates
  With the growing number of financial institutions offering loans to small businesses, entrepreneurs can make the best of the competitive interest rate structure. 

Also Read: What Is A Small Business Loan? Benefits, Types And Other Features

Eligibility Criteria for Startup Business Loans 

The eligibility criteria for obtaining a startup business loan are as follows:

• Self-employed individuals, partnership firms or private enterprises in manufacturing, trading or services can apply for business loans.
• Applicants should be between 21-65 years of age.
• The business should be making profits for at least 2 years. Also, it should have a minimum turnover.
• The applicant should have a CIBIL score of at least 750.

Note that these requirements vary across different lenders. 

Documents Required for a Startup Business Loan 

Business owners willing to take loans should submit the following documents to the concerned financial institution. 

• PAN card (Individual/firm/company)
• Government ID (Aadhaar card, voter ID, passport, driving license, PAN card, etc.)
• Address proof (Aadhaar card, passport, driving license, voter ID, etc.)
• Bank account statement for the last 6 months
• Income tax return, balance sheet, profit/loss account statement, proof of continuation (sales tax certificates, trade licenses, etc.)
• Other relevant business documents like sole proprietor declaration/partnership deed, a certified copy of memorandum and articles of association, etc. 

Note that some financial institutions may require additional documents. 

How to Apply for a Startup Business Loan? 

Business owners should first calculate the EMI amount for their desired principal level by using an online business loan EMI calculator. After that, they can apply for a startup business loan by following these steps:

Step 1: Open the lender’s official website and click on ‘Apply Now’. 

Step 2: Fill in the personal information.

Step 3: Enter the loan amount and EMI 

Step 4: Click Confirm and wait for the confirmation message. 

Applicants should make sure that they have the required documents ready before initiating the application procedure. In the case of the offline procedure, the applicant needs to visit the NBFC or bank’s nearest branch and submit the duly filled application form along with the required documents. 

List of Banks Providing Start-Up Business Loans 

Some leading banking institutions providing loans to startups are as follows:

1. HDFC Bank
2. SBI 
3. ICICI Bank 
4. Axis Bank 
5. Citibank 
6. IDFC First Bank 
7. Kotak Bank 
8. Standard Chartered 
9. Karnataka Bank 
10. IndusInd Bank

Also Read: All You Need To Know About Availing A Business Loan Without ITR

Startup Business Loan by the Indian Government 

The Government of India provides loans to small businesses, especially in the MSME sector, at a low cost. Some institutions that provide start-up loans for new businesses are as follows:

• National Bank for Agriculture and Rural Development (NABARD) boosts projects and business ventures that involve agriculture and conservation.
• Credit Guarantee Scheme aims to facilitate financing for companies dealing in manufacturing and service. They can provide working capital loans up to Rs.100 lakh. 
• Pradhan Mantri MUDRA Yojana (PMMY) provides loans under three categories – Shishu for a maximum of Rs.50,000, Kishor for greater than Rs.50,000 and less than Rs.5 lakh and Tarun for loans above Rs.5 lakh till Rs.10 lakh. 

Things to Consider before Applying for a Startup Business Loan 

Entrepreneurs should consider some basic factors that would influence their loan application. Such factors include the following: 

• Understanding the business requirement is crucial because it helps identify the fund requirement.   
• One should research the various types of loans available and check the repayment options, tenure, rates of interest, EMI, etc. 
• Business owners should always check their credit score before applying for business loans. This helps them understand their creditworthiness. 
• Checking the repayment is important for borrowers. Owners should also check the loan tenure and charges like processing fees, default fees, documentation charges, etc.

Final Word 

To make money, a business owner will have to spend money. Business enterprises need capital to purchase machinery, expand operations, or for research and development. Obtaining a start-up business loan from banks is the easiest and most flexible way to raise funds and meet the various requirements. 

FAQs on Start-up Business Loan

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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.