Ever since the Startup India campaign was announced in the year 2015, the number of new Micro, Small & Medium Enterprises (MSMEs) has been on the rise. The campaign is based on an action plan aimed at promoting bank financing for Startups and new businesses. It has encouraged startups, which will eventually lead to more job creation, equity and shall help in the nation’s socio-economic growth.
Several leading financial institutions offer Startup loans for new businesses at low interest rates. Further let’s discuss the eligibility required to start a new enterprise, along with popular business loan schemes.
Eligibility Criteria for New Business (Startup) Loan
- Applicant should be minimum 21 years and maximum 65 years at the time of loan maturity
- Work Status should be self-employed
- Startup to be formed must as a sole proprietorship, partnership firm, private or public limited company, or a limited liability partnership (LLP)
- Credit score: 750 or above
- Applicant with no previous loan defaults with any bank shall be considered more
- Total annual turnover of the firm should not exceed Rs. 25 crore
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Comparison of Business Loan Interest Rates offered by Top Banks/NBFCs – 2023
|Axis Bank||14.95% - 19.20% p.a.||Apply Now|
|Bajaj Finserv||9.75% - 30% p.a.||Apply Now|
|Flexiloans||1% per month onwards||Apply Now|
|HDB Financial Services Ltd.||Up to 36% p.a.||Apply Now|
|HDFC Bank||10% - 22.50% p.a.||Apply Now|
|IDFC First Bank||10.50% p.a. onwards||Apply Now|
|Indifi||1.50% per month onwards||Apply Now|
|Kotak Mahindra Bank||16% - 26% p.a.||Apply Now|
|Lendingkart||12% - 27% p.a.||Apply Now|
|Mcapital||2% per month onwards||Apply Now|
|NeoGrowth Finance||19% - 24% p.a.||Apply Now|
|Tata Capital||12% p.a. onwards||Apply Now|
|UGRO Capital||9% - 36% p.a.||Apply Now|
- Duly filled application form with Passport-sized photographs
- KYC documents of applicant and co-applicants that include Passport, Aadhar card, Voter’s ID card, Driving License, PAN Card and Utility Bills (Telephone & Electricity Bills)
- Last 12 months’ bank statement
- Last 1-year ITR
- Business Incorporation Certificate
- Business Address Proof
- Any other document required by the lender
Business Loan Types and Schemes for Startups
- Term Loan (Short-term / Long-term)
- Working Capital Loan
- Overdraft Facility
- Loans under Mudra Yojana
- Startup India from Govt. of India
- Loans under CGTMSE Scheme
- Bill/Invoice Discounting
- Letter of Credit
- SIDBI’s Growth Capital and Equity Assistance Scheme
- Micro Loans from NPOs and NGOs
Top 6 Govt. Loan Schemes for Startups in India
Find below the details of loans schemes initiated by the Govt. of India over the past few years:
1) Startup India
Startup India Scheme is an initiative by the Government of India that offers instant business loans for startups for growth and expansion. Other key functions of Startup India include the promotion of Startups, wealth creation, and employment generation. Register with Startup India to avail business loans at attractive interest rates.
2) Standup India
Stand-Up India Scheme offers funds to people who come under the SC/ST category and women entrepreneurs of the society. Stand-up India scheme was initiated by the Government of India to provide credit services, majorly to SC/ST category people. The primary purpose of this scheme is to help banks by offering loans between Rs. 10 lakh and Rs. 1 crore to at least one SC/ST applicant and one women entrepreneur, per bank branch enabling them to start their own business.
The Government of India has launched a web portal that approves business loan applications in just 59 minutes from the time of submission. The minimum loan amount offered under this scheme is Rs. 10 lakh and the maximum is up to Rs. 5 crores. The interest rate offered by Banks/NBFCs under this scheme starts from 8.50% p.a.
4) MUDRA Loan
Mudra Yojana under Pradhan Mantri Mudra Yojana (PMMY) offers loans up to Rs. 10 lakh without asking borrowers for any collateral at affordable interest rates. The repayment tenure is up to 5 years and the processing fee is Nil to nominal. There is no minimum loan amount criteria to borrow. The interest rates shall vary from bank to bank, depending upon the applicant’s profile and business requirements.
5) CGTMSE Scheme
Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE) is another Government initiative that offers funding to MSMEs via financial institutions like banks and NBFCs. Under this scheme, first-time entrepreneurs and startup enterprises are majorly benefitted. The loan offered under the CGTMSE scheme is collateral-free.
6) SIDBI’s Growth Capital and Equity Assistance Scheme
Entrepreneurs can now avail this distinct type of funding for their startup from the banks. Many banks and financial institutions offer loan schemes that are specifically designed to fund startups and their special needs. Different banks may assign different names for these Startup Business Loans.
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Benefits of Startup Loans
- The new entrepreneurs are granted tax relief for 3 years
- Funds from venture capital are quite expensive for a startup with investors of venture capital asking for as much as 5 to 10 times the return on their investment. However, a bank loan does not require any equity dilution and the rate of return to the bank is fixed at a nominal interest rate
- Banks are easier to approach. With numerous Banks and NBFCs in India, it is simpler to approach local bankers and request for funds and credit facilities
- Banks in India have an established and well-structured framework for processing the funding request of entrepreneurs. Therefore, loan requests are usually processed quickly with minimum documentation
- Another significant benefit is that the profit (as well as the loss) of the business belongs only to the borrower. Borrowers are not answerable to the bank regarding the profit and loss of their businesses
How to Apply for Startup Loans
To apply for a business loan, applicants can check and compare various loan options that suit their business requirements. Follow the below steps to apply for a business loan by clicking ‘Business Loan’ on the homepage of the website.
Step 1: Fill in all the required fields, such as desired loan amount, employment status, annual gross sales or turnover, city of residence, years in current business, collateral type, and mobile number.
Step 2: Check the below box to agree on terms and further Click to ”Unlock Best Offers”
Step 3: Further you are required to mention the Company type, Nature of business, Type of industry, Gross Annual Profit, Bank Account, any existing EMI, Full name, Gender, Residence PIN code, PAN card, Date of Birth, and Email Address.
Step 4: After submitting all the details, the bank’s representative will contact you to proceed with loan formalities.
Step 5: Once your loan application is approved, within defined working days the approved loan amount shall get disbursed in your mentioned bank account.
Key Takeaways for Startups
Prior to approaching a banker or investor with a request for funding, the applicant must prepare a proposal that explains the business model, promoters’ background, revenue model, estimated sales, estimated growth rate, estimated profits, and so on. In short, the proposal must comprise everything related to the business.
Secondly, Startup loan borrowers must not have bad credit and should maintain a good credit score in order to get loans at lower interest rates. Lastly, the applicants must clearly understand the various criteria that Banks employ to screen, rate, and process their loan applications and the importance of furnishing precise and correct information.
Also Read: How to Get Loan Under Stand up India Scheme
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Q. What is the purpose of a Start-up Business Loan?
Ans. Startup business loan basically caters to the main funding of a business that you wish to start. The Startup can be of anything and getting a loan to start a new business will only boost your business initially by giving the necessary machinery and equipment to your startup.
Q. What are the Government based loans for startup businesses offered in India?
Ans. Some Government based start-up business loans in India are as follows:
- Startup India Scheme
- Mudra Loan under PMMY
- Bank Credit Facilitation Scheme – CGTMSE
- Standup India
- psbloansin59minutes.com, etc.
Q. What is the loan amount that can be availed through a Business Startup Loan?
Ans. The minimum and maximum loan amount depend on the financial lender you choose and the requirement that you have. The minimum loan amount has no limit whereas the maximum loan amount can go up to Rs. 2 crore (collateral-free business loan).
Q. What are the things to compare before applying for a Startup business loan?
Ans. Few things to keep in mind before applying for a start-up business include the interest rate, processing fees, service charges, documentation charges, loan cancellation fees, penal charges, stamp duty, prepayment or foreclosure charges, cheque swap/bounce charges, etc.
Q. Can Startups get a loan without submitting any collateral?
Ans. There are some business loan schemes initiated by the Govt. of India that offer loans without collateral/security, such as Mudra Loan under PMMY, Startup India, Standup India, and CGTMSE are loan schemes where one does not need to provide any asset as security before applying for a business loan.
Q. Which Banks or financial institutions offer business loans for startups in India?
Ans. Most of the private and public sector banks, NBFCs, and even Small Finance Banks and Micro Finance Institutions offer business loans for Startups in India.
Every Startup enterprise needs financing, particularly at its initial stage. Financing is required to help startups set up and expand their operations, develop new products, market their services, etc. India has a well-developed financial system comprising Banks, NBFCs, and venture capital companies. All these institutions cater to the diverse financial needs of startups, as well as existing businesses. Several schemes are being implemented by various financial institutions to cater to the financing needs of the Startups and MSMEs in India.