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Startup Business Loan

Startup Business Loan Features

Last Updated 17th Oct 2021

  • Startup Business Loan is a special loan for the new and emerging businesses that are in their initial stages of operation and require funds for infrastructure and production needs.
  • To avail new business loans, startups must fulfill startup business loan eligibility factors related to age, CIBIL Score, business experience etc.
Maximum Loan Amount₹ 2 Cr (may vary across Government schemes)
Maximum Loan Tenure5 years (may vary across Government schemes)
Types of start-up loans Line of Credit Equipment Financing
Government funded schemes for start-up loans Mudra Loan Stand Up India Credit Guarantee Funds Trust for Micro and Small Enterprise
Application processBoth offline and online
Apply for Business Loan @ 14.00%*

Business Loan for Startup

A start-up loan is a form of business loan that is exclusive to business owners of start-up companies. The funds borrowed with loan can be utilised to meet business expenses such as buying equipment or machinery, paying for overhead expenses, purchasing inventory etc. You can avail the startup loan for the business from banks or NBFCs if you meet the set eligibility criteria. However, to avail a start-up business loan, you need to have a solid business plan that informs the lender about when and where the borrowed funds will be utilized. The business plan should also include the goals and objectives of the business plan.

Eligibility Criteria for Startup Business Loan

While the eligibility criteria for availing startup business loan may vary from lender to lender. If you are an entrepreneur and looking to start a new business, you must fulfil the following eligibility criteria:

  • You should be an Indian resident.
  • Your age should be between 25 years to 65 years.
  • Have a CIBIL score of 700 or above.
  • Your business must be operational for a minimum of 2 years.
  • Must have filed ITR for business for at least 1 year.
  • You should have a well planned and realistic business plan.

Documents Required for New Startup Business Loan

To avail of a new startup business loan, you also need to submit the following documents at the time of filling the application for a new business loan:

  • Duly filled application form with Passport-sized photographs
  • KYC documents of applicant and co-applicants- Passport, Aadhaar card, Voter’s ID card, Driving License, PAN Card and Utility Bills
  • Self-drafted Business Plan
  • Last 12 months’ ITR and bank statement
  • Ownership Proof such as business registration papers

Interest Rate of Top Startup Business Loan Providers

You can avail of a startup loan from a bank or a non-banking financial institution to raise funds for your business. The startup business loan interest rate varies depending on various eligibility factors, including loan amount, loan tenure etc. The table below mentions the startup interest rate of top banks.

Bank Startup Business Loan Interest Rate
PNB 8.70%
Union Bank of India 8.90%
Corporation Bank 8.90%
Andhra Bank 8.90%
Indian Bank 9.05%

How to Get a Startup Business Loan - Steps by Step Procedure

To avail the business loan for a new business without any hurdle and to facilitate the process of availing funds, it is essential that you must follow the steps as mentioned below:

  • Understanding the cost and finance of your business is a crucial step to know the nature of funds requirements. You must thus review the startup cost before applying for a startup business loan.
  • The next step is to collect all the essential documents related to identity and address proof, bank statements, income proofs and registration forms etc.
  • There are multiple business loan schemes for startups. You must carefully choose the right type of business loan for your startup, depending on the goals of your startup.
  • You can apply for a new business loan through private or public financial institutions, including government startup business loans.

Offline process: To follow the offline process for a start-up loan application, one needs to visit the bank physically. Ask for a start-up loan application form and submit the form after filling the asked information. However, ensure carrying the required documents as listed above;otherwise, the process could be time-consuming. The lender verifies the documents and informs the applicant about his loan status.

Key Features and Benefits of Business Loan for Startup

You can avail of the following benefits by availing of a startup loan for a new business:

  • The startups can avail of tax relief for upto three years if they avail a loan for a startup.
  • Most banks and non-banking financial institutions do not require collateral or security to provide a startup business loan.
  • Startup business loans can be availed easily with minimum documentation.
  • They have flexible tenures ranging upto 120.
  • The enterprises can avail government startup business loan to avail funds at a subsidised rate.

Types of Start-up Business Loan offered in India

A start-up business loan is an umbrella term that covers loans used for different purposes borrowed in different ways. Different types of loans for a start-up is listed as follows:

Line of Credit for Start-ups: A line of credit facility for start-ups, thus, is also called the instalment loan facility. It functions like a credit card and is connected to a business unit that allows you to use the borrowed funds as the need arrives over a period of time. Therefore the loan amount is not used in lump-sum as in traditional loans, but instead in instalments. The Line of credit is beneficial as you are not entitled to pay the interest rates on the entire loan amount, indeed only on the amount of funds used. Some lenders even offer interest-free transactions on Line of credit during initial months.

Equipment Financing for Start-ups: The equipment financing works differently than the collateral-free nature of start-up loans. In this type of start-up business loan, the equipment purchased with the help of the loan is kept as collateral or a mortgage with the lender. The benefits that equipment financing offers is that the depreciating value of the equipment over the years can be used to claim tax benefits. Also, since the equipment financing for start-ups is secured and collateral-based, start-ups owners can avail loan at a lower interest rate.

Schemes Offered by Indian Government for Startup Business

Micro, Small & Medium Enterprises have limited access to formal credit options. This access becomes more challenging when a business is just an idea or has started. To boat such small businesses and startups, the Indian government offers government startup business loans. Details of a top Government loan for new business are mentioned below:

Pradhan Mantri Mudra Yojana: Pradhan Mantri Mudra Yojana was introduced by the government of India to provide finance to budding enterprises. The individuals who wish to start their business in non-corporate and non-farm sectors can avail of the Mudra Loan for a maximum of ₹ 10 Lakh from different banks and non-banking institutions. The Mudra loan interest rate varies based on the loan amount and repayment capability.

Credit Guarantee Scheme: Credit Linked PMAY Subsidy Scheme or CLSS scheme aims to provide affordable housing to urban and rural poor with the primary focus to Low Income Group and Economically Weaker Sections of our country. Under this scheme, you can get an interest subsidy of up to 6.5% on housing loans for a tenure of upto 20 years.

Standup India: The scheme launched in April 2016 provides loans ranging from ₹ 10 Lakh to upto ₹ 10 Cr to enterprises working in manufacturing, trading, or services for a repayment period of seven years. Standup India Scheme mostly caters to SC/ST category people. Under this scheme, you can also avail of the moratorium period of upto 18 months.

PSB Loans in 59 minutes: Psbloansin59minutes is a scheme for Micro, Small and Medium Enterprises in India that allows the enterprises to avail of business loan in 59 minutes. Under this scheme, the Government has launched an online portal where MSMEs get a loan for expanding their business ranging from ₹ 1 Lakh to ₹ 5 Cr from public and private sector banks and non-banking financial institutions (NBFCs) in 59 minutes.

FAQs

Can an unemployed person get a business loan for a startup?

Yes, the Government provides business loans to the unemployed youths for starting a new business under various schemes, including Prime Minister Rozgar Yojana, NEEDS Schemes, Cash Loans, Agriculture Loan, and secured loans.

How much Loan amount can I get for a startup business?

The loan amount varies depending on your eligibility and repayment capabilities. However, banks provide startup business loans ranging from ₹ 5,000 to ₹ 100 Cr .

Can I get a start up business loan with bad credit?

Some banks may provide a start up business loan to you even on bad credit. However they may provide these loans at a higher rate of interest and for shorter loan tenure. In addition, you may also bring in a guarantor or a co-applicant with a good cibil score.

What are the factors that affect a startup business loan?

Some of the factors that affect your eligibility for startup business loan include age, CIBIL Score, income, tenure etc. Apart from that, to avail a startup business loan you must also present a good business plan that is realistic and achievable.

Are there any government schemes for startup business loans in India?

Yes, there are multiple Government schemes for startup business loans in India and some of the schemes are mentioned below:

  • Startup India Scheme
  • Mudra Loan under PMMY
  • Bank Credit Facilitation Scheme
  • Standup India
  • psbloansin59minutes.com

Can I get a business loan for startup without any collateral?

Yes, there are various business loan schemes that provide loans without security, such as Mudra Yojana, Startup India, Standup India, and CGTMSE.


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