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. It has also encouraged startups, which will eventually lead to more job creation and shall help in the nation’s economic growth.
Several leading financial institutions offer Startup loans for new businesses at an attractive interest rate. Further let’s discuss the eligibility required to start a new enterprise, along with popular business loan schemes.
Comparison of Business Loan– January 2023
|Bajaj Finserv||9.75% – 25% p.a.|
|HDFC Bank||10.00% – 22.50% p.a.|
|FlexiLoans||1% per month onwards|
|ZipLoan||1% – 1.5% per month (Flat ROI)|
|ICICI Bank||12.25% – 13.35% p.a.|
|Axis Bank||14.65% – 18.90% p.a.|
|Indifi Finance||15% – 24% p.a.|
|Kotak Mahindra Bank||16% – 19.99% p.a.|
|RBL Bank||17.85% – 21.35% p.a.|
|Lendingkart Finance||1.5% – 2% per month|
|Tata Capital Finance||19% p.a. onwards|
|NeoGrowth Finance||24% p.a. (APR)|
|Hero FinCorp||Up to 26% p.a.|
Eligibility Criteria for New Business (Startup) Loan in India
- Applicant should be a minimum of 18 years and a maximum of 65 years at the time of loan maturity
- The 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
- The applicant with no previous loan defaults with any bank shall be considered
- The total annual turnover of the firm should not exceed Rs. 25 crore
Documents Required Loan
- 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)
- Self-drafted Business Plan
- Last 12 months’ bank statement
- Last 1-year ITR
- Business Incorporation Certificate
- Business Address Proof and PAN card
- Any other document required by the lender
Loan Types and Schemes
- 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
Find below the details of loans schemes initiated by the Govt. of India over the past few years:
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 of business loans at attractive interest rates.
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 lakhs 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 lakhs 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.
Mudra Yojana under Pradhan Mantri Mudra Yojana (PMMY) offers loans up to Rs. 10 lakhs 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 are 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.
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.
SIDBI’s Growth Capital and Equity Assistance Scheme
Entrepreneurs can now avail of 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 to these Startups.
Benefits of Startup Loans from Banks/NBFCs
- 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 funds
- Banks in India have an established and well-structured framework for processing the funding request of entrepreneurs. Therefore, loan requests will be processed more quickly compared to capitalist investors
- 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
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.
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: 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 3: After submitting all the details, the bank’s representative will contact you to proceed with loan formalities.
Step 4: 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.
Startup business loan borrowers must not have bad credit and should maintain a good credit score in order to get loans at lower interest rates. 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.
Financial and Business expert having 30+ Years of vast experience in running successful businesses and managing finance.