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In recent years, Start-Ups have made a marked entrance into the Indian economic scene. They have become an integral part of the Entrepreneurship Ecosystem, providing employment to millions of people across the country.
Start-ups require a lot of funding. Entrepreneurs put in a lot of hard work towards their start-up idea. They do meticulous research and designing of their product or the service they want to offer. It is important that they receive the right funding to execute their plan to start their business endeavour and be successful.
The Government of India has introduced various financial assistance schemes to encourage such Start-Ups in the country. The Make In India initiative was initiated with the objective of making India self-sufficient by producing various products and services within the country.
As mentioned earlier, Start-Ups need a lot of money to start functioning. They may require funding for one, a few, or all of the following purposes.
Start-ups usually get the following types of funding for their enterprise
Angel Investors, Self-financing, Family and Friends, Venture Capitalists, Crowdfunding, Incubators/Accelerators
Banks, Non-Banking Financial Institutions, Government Loan Schemes (CGTMSE, Mudra Loan, Stand-up India)
Central Government, State Governments, Corporate Challenges, Grant Programs of Private Entities
Term Loans, Working Capital Loans and other types of fund-based credits
Grants to stimulate the Start-up enterprise
Capital growth for investors
Risk factor for the investor is higher as he has no guarantee against his investment
Risk factor for the investor is lower as he generally has collateral against his investment
There is no risk factor for the start-up as no collateral is involved
Start-Up loans are of the below 2 common types:
The current rate of interest ranges between 10.99% to 21%
The loan amount depends on the bank or the Government scheme under which the loan is applied. Banks have been known to offer Start-up loans of up to Rs.1 crore. More amounts could be availed based on the business needs and the collateral security offered.
We are now going to have a look at the various loan products offered by banks and NBFCs in India. Here are some of the popular Government schemes you can apply for your start-up.
MUDRA – Micro Units Development & Refinance Agency Ltd
Credit Linked Capital Subsidy Scheme (CLCSS)
SMILE – to develop Make In India initiative
The Credit Guarantee Fund Scheme for Micro and Small Enterprises
SBI Stand-Up India Loans
ICICI Bank Loans for New Entities
IIFL Business Loans for Startups
Bajaj Finserv Start-Up Business Loans
The borrowers need to prepare proper documentation regarding their business. A convincing business plan is important for the bank to consider your application for a start-up loan.
A Strong Business Plan: Make sure that you have prepared a strong and convincing Business Plan to present to the bank. The plan should spell out the financial potential of the business for the foreseeable future. It should portray stability and growth while underlining the return of investment aspect for the investor.
Documentation: Make sure that your application includes strong supporting documents pertaining to your current establishment and the planned project. Make sure that documents and proofs are up to date. Avoid any misleading or ambiguous documentation or information.
Your experience: If you have a business background, don’t fail to mention it on your application.
Personal Finance: It would also help to include your personal finance standing and how you can support the business financially.
Collateral: This is an important aspect of any loan. Pledging some kind of collateral will always help your chances in landing the loan.
Start-Up Business Loans pretty much have similar criteria to Business Loans. Just a few aspects may differ.
1. What is the current rate of interest on Start-Up Business Loans?
2. How much loan can I get for my Start-Up?
The loan amount depends on the bank or the Government scheme under which the loan is applied. Banks have been known to offer Start-up loans of up to Rs.1 crore. More amount could be availed based on the business needs and the collateral security offered.
3. Is collateral mandatory to get a Start-up Loan?
Loans of up to Rs.10 lakhs under the MUDRA Yojana do not require any collateral. Banks may ask for collateral as per their guidelines.
4. Do NBFCs offer Start-up loans in India?
Yes, various NBFCs offer Start-Up Business Loans in India. IIFL, Bajaj Finserv, Tata Capital, Ziploan, Fullerton India and many more NBFCs offer business loans for Start-Ups in India.
5. What are the most common types of Start-Up Loans?
Term Loans and Working Capital Loans are the most common types of Start-Up Business Loans.
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