According to the Economic Survey Report 2022-23, the number of registered startups rose from 452 in 2016 to 84,012 in 2022. The easy availability of startup loans for new businesses and easing business compliances are primary reasons for this growth in the number of startups.
These days, both banks and financial institutions provide loans for businesses to people who would like to start a new venture. The interest rate and loan tenure of startup business loans varied across lending institution. Shriram Finance provides business loans up to ₹30 lakhs with an interest rate starting at 15%* p.a. Apply now for a business loan!
Key Highlights
- In the dynamic Indian business environment, securing the right financing is crucial. With a wide range of business loans available, it's essential to conduct thorough research and choose the option that aligns with your business goals.
- As the business will be a new one, the credit score of the applicant will play an essential role in loan approval.
- The business plan is another important document that lenders consider before extending a loan for a business.
- Before applying for a startup loan for a new business, the applicant must have a clear idea of the fund to be raised.
How to Get a Startup Business Loan?
Here are a few steps every borrower should take care of when applying for a business loan for a new venture.
What Kind of Loan Does the Business Need?
Several types of business loans are available in India for new businesses. Therefore, before preparing for a loan, business owners must have a clear idea of the loan type. Ahead of applying for a loan for business, figure out the EMI and the total amount payable with the help of an EMI calculator.
The most popular loans for startup are:
Term Loans:
Term loans can be either short-term or long-term and the loan tenure depends upon the loan amount. A term loan is usually meant for marketing purposes, procuring fixed assets, etc.
Working Capital Loan:
Working capital loans are short-term loans designed to meet the day-to-day cash requirements of the business.
Machinery Loan:
Machinery loans aid entrepreneurs in meeting the fund requirement for purchasing machinery and equipment.
Business Line of Credit:
Business owners can avail business line of credit from a bank or financial institution. This flexible loan option allows entrepreneurs to access funds on an as-needed basis and pay interest only on the portion of the amount accessed.
Government Startup Loans:
The Government of India facilitate various startup loans.
Business Loans for Women:
To encourage the involvement of women in the business world, many banks and financial institutions offer loans for women. These loans enjoy fast processing, special interest rates and flexible loan tenures.
Check the Credit Score
While applying for a startup loan, lenders generally check the applicant's credit score. Mostly new business may not have a credit history. Normally, the credit score will be available to companies only after 6-12 months of operations.
Startup loans for new businesses are often personally guaranteed and that’s another reason why lenders stress the owner's credit score.
If the applicant has a CIBIL™ score above 700, the loan approval chances are high, as a high credit score indicates the applicant is more likely to make timely payments. Hence, applicants must check their credit scores before applying for loans for startup.
Calculate the Amount Required to Raise
The business owners should know how much they need to raise through a startup loan. A thorough homework is required to figure it out. Below are the most common types of capital expenses necessary to start a new business:
- Expenses for registration, licences and permits
- Costs of purchasing tangible assets. It varies depending on the kind of business and size of the company. For instance, a manufacturing unit may require machinery/equipment. A food business may need stoves, ovens, utensils, etc.
- Expenses on intangible assets such as patents, trademarks, copyrights, etc.
- Costs for leasing/renting the office premises
- Expenses related to inventory creation
- Raw material procurement expenses
- Cost of creating a business website
- Initial investments in technology
- Expenses for the purchase of office furniture and supplies
- Cost of utilities
- Initial marketing expenses
- Insurance costs
- Other down payments, if any
Remember to Check the Eligibility
The eligibility criteria for a startup business loan vary from lender to lender. However, the most standard ones are:
- The age of the applicant should be between 21 and 65 years.
- The applicant must be an Indian resident.
- A good CIBIL™ score.
- Must have a robust business plan and a realistic business strategy.
The business plan must be clear and at the same time, informative. It should convince the lender about the future growth and profitability of the business. Taking professional help in creating a business plan is a wise idea.
Gather all the Required Documents
Key documents necessary to submit along with the application form for a loan for are:
- Identity proof
- Address proof
- PAN card
- Income proof - to ensure the applicant has a stable income
- Proof of ownership
- Bank statement for the last 6 months
- Income tax returns of the applicant
- Passport size photo
- Financial projections
- Copies of registration and business licences
Compare Lenders
Multiple lenders will be ready to extend funding to a qualified applicant. But before finalising the lender, compare their interest rates as well as fees and charges. Also, always pay attention to the reputation of the lender.
Apply for a Loan
After compiling all the required documents and finalising with the lender, the next step is to apply for the loan. Both online and offline application modes are available for startup business loans in India.
To apply offline, visit the nearest branch office of the lender and submit the application along with all supporting documents.
Follow the below steps to apply online:
- Visit the lender's website and fill up the online application form.
- Upload all necessary documents and submit the application.
- On successful submission, the applicant will receive a confirmation notification in the registered number or email id.
- A representative of the lender will contact the applicant for verification.
- After verification, the applicant will receive a loan offer indicating the loan amount, interest rate, etc.
- After approval, the loan will be disbursed to the applicant's bank account.
Summary
Startup business loans are designed to meet the capital requirements of new businesses. It aids the entrepreneurs in setting up the business without relinquishing their equity or a part of their ownership. But while applying for a startup loan for a new business, the applicants must be careful. An incomplete application form, an unrealistic business plan and failure to provide any necessary documents may delay loan approval and disbursal.
Shriram Finance offers loans for businesses for various purposes at a competitive interest rate and minimal paperwork is required. Flexible repayment tenure and quick approval are other key features of these loans. Additionally, an online application facility is available for Shriram Business Loans. Apply now!
FAQs
1. Is a foreclosure facility available for business loans in India?
Most lenders offer foreclosure facility with their loans for business in India these days. But some lenders allow foreclosure of the loan only after paying a certain number of EMIs. Besides, borrowers must pay a penalty to the lender if they opt for loan foreclosure.
2. What are the alternatives to startup business loans?
A few alternatives to startup loans are:
- Crowdfunding
- Revenue-based financing
- Personal loans for business purposes
- Angel investors
- Venture capitalists
- Startup incubators
3. Is it possible to get a business loan without a credit history?
Yes, a person without a credit history can also avail a loan based on the lending institution’s eligibility criteria. But in such cases, the lender will demand collateral. Further, the interest rate and other charges of such loans will differ.
4. How old should a startup be when applying for a startup business loan?
Businesses that have crossed 5 years of inception are not eligible for a startup loan.
5. Does a business plan play a vital role in the startup business loan approval?
Yes, the business plan is a crucial document for a startup business loan. The objective and goal of the business should be mentioned clearly and in detail in the business plan. Besides, the business plan should also indicate the future profitability and roadmap of the company.