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Start-up Business Loans

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.

What kind of funding do Start-Ups require?

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.

  • Prototype Creation, Product Development, Website/App Development
  • Team Hiring
  • Legal and Consulting Services for your Start-Up
  • Raw materials and equipment
  • Licenses and Certifications
  • Working Capital
  • Marketing and Sales
  • Office space and other administrative expenses

What are the types of funding available for Start-Up Businesses?

Start-ups usually get the following types of funding for their enterprise

  • Equity Financing
  • Debt Financing
  • Grants
Characteristics of InvestmentEquity FinancingDebt FinancingGrants

Sources

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

Nature

Capital Investment

Term Loans, Working Capital Loans and other types of fund-based credits

Grants to stimulate the Start-up enterprise

Repayment 

Capital growth for investors

Interest payments

No return

Risk Factors

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

What are the common types of loans available for Start-Ups?

Start-Up loans are of the below 2 common types:

What is the current rate of interest on Start-Up Business Loans?

The current rate of interest ranges between 10.99% to 21%

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 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

  • MUDRA has three loan schemes under it – Sishu loan up to Rs. 50000, Kishore loan up to Rs. 5,00,000 and Tarun loan up to Rs. 10 lakh
  • This is a Government sponsored Refinance Support to banks and NBFCs to facilitate higher funds available for lending
  • Small Business loans for entities involved in manufacturing, trading, services, tractor financing, agriculture and allied activities, and two-wheeler loans
  • They also provide non-fund based support to small business entities through financial literacy and other social support services in addition to financial assistance

Credit Linked Capital Subsidy Scheme (CLCSS)

  • Another Government scheme aimed at technological upgradation of small businesses
  • Provides 15% capital induction for well-established and improved technologies
  • Funds are disbursed primarily through SIDBI and NABARD 
  • Nine nodal banks have been inducted to work along in the scheme

SMILE – to develop Make In India initiative

  • Primary objective is to boost the Make In India initiative
  • Eligible entities include new and existing MSME units in manufacturing sector or service sector undertaking expansion can avail this loan
  • Loans issued in the form of Quasi-Equity
  • Minimum loan size is Rs. 25 lakh
  • Attractive rate of interest starting from 8.36%
  • Repayment tenure of up to 120 months

The Credit Guarantee Fund Scheme for Micro and Small Enterprises

  • A flagship scheme of the government to benefit the MSME sector
  • Allows collateral free loans of up to Rs.10 lakhs
  • New and existing MSME units involved in manufacturing or service sector can apply
  • Retail trade, Educational institutions, Agriculture and Self-Help Groups (SHGs) are excluded

Start-Up Business Loans from a few leading Banks & NBFCs in India

SBI Stand-Up India Loans

  • Nature of Facility: Composite Loan in the form of Working Capital facilities and Term Loans
  • Purpose of the loan: The loan can be utilized to meet all kinds of credit requirements for setting up Greenfield projects under manufacturing, services or the trading sector.
  • Who is eligible? SC / ST and Women entrepreneurs
  • Quantum of loan (Min/Max)
  • Minimum loan amount: Rs. 10 lakhs
  • Maximum loan amount: Rs. 1 crore
  • Margin (%): Minimum mandatory margin is 10%. Maximum margin money on composite loans would be up to 25%, which will be reduced through convergence with Central / State schemes.
  • Interest rates: Competitive Interest rates linked to MCLR
  • Collateral Security: No Collateral / Third Party Guarantee to be obtained. All loans to be covered under CGSSI (Credit Guarantee Scheme for Stand-Up India Scheme)
  • Repayment tenure: Maximum of 7 years (including moratorium period of up to 18 months)
  • Processing Fees: 0.20% of loan amount (plus GST as applicable). 

ICICI Bank Loans for New Entities

  • Available for both first time borrowers or a newly started business
  • Loan can be utilized to meet day to day expenses
  • Specially caters to businesses in Manufacturing, Retail, Wholesale, Trading (Import/ Export) and service industries
  • Fund-based financing in the form of Cash Credit/ Overdraft/ Export Credit
  • Non-fund based financing to manufacturers, traders and service providers that are 1 year or older
  • Term Loans are also available for purchase of commercial assets and business expansion needs

IIFL Business Loans for Startups

  • IIFL offers two types of funding for StartUps – Line of Credit & Equipment Loans
  • These loans require minimal documentation
  • Prospective entrepreneurs have to prove their personal credit history
  • Competitive interest based on the individual’s credit history
  • Comfortable repayment and flexible tenure
  • Added benefits like SMS, web chat, and other services

Bajaj Finserv Start-Up Business Loans

  • Bajaj Finserv Startup Loans offer a business loan for new businesses of up to Rs. 30 lakh
  • Get approval as quick as 24 hours
  • Offers doorstep document collection
  • Repayment tenure of 12-60 months
  • Collateral free loans
  • Affordable interest rates to get your start-up running as fast as you can
  • Online account management for convenience and ease of access

What are the factors affecting my Start Up Loan eligibility?

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 Loan Eligibility

Start-Up Business Loans pretty much have similar criteria to Business Loans. Just a few aspects may differ.

  • The company or entity should be new or less than 5 years old
  • The Start-Up be registered as a Private Limited Company or a Limited Liability Partnership
  • The turnover of the firm should not exceed Rs. 25 crore
  • The company should have all the relevant approvals from the Department of Industrial Policy and Promotion (DIPP)
  • The Start-Up must possess a patron guarantee from the Indian patent and Trademark Office
  • A recommendation letter by the Incubation
  • The proposed product or service should be innovative 
  • Angel Fund, Incubation Fund, Accelerators, Private Equity Fund, Angel Network must be registered with SEBI

Start-Up Business Loans FAQs:

1. What is the current rate of interest on Start-Up Business Loans?

The current rate of interest ranges between 10.99% to 21%

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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