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The number of borrowers has been increasing ever since the Startup India scheme was introduced in 2015. The startup India aims at promoting lenders offering funds for startups. Under this scheme, individuals who want to start a new business, or existing businesses looking for expansion can get a startup business loan. Multiple lenders are offering startup loans for ambitious business persons and entrepreneurs. The government of India also offers several startup loan schemes for aspiring businessmen.
➤ What is a startup business loan?
Startup business loans are exclusively meant for businesses with a little or no history. Startups business loan can be used for a variety of business purposes including working capital needs, debt consolidation, purchase of machinery, supply chain financing, asset acquisition, etc.
➤ Eligibility criteria for startup business loan
Although the eligibility required may vary from lender to lender, basic eligibility criteria that you need to fulfil to get business startup loans are as follows:
- The borrower must be an Indian citizen
- The borrower should be at least 21 years old at the time of application while the maximum age should not exceed 65 years.
- The borrower should be an entrepreneur or have a convincing business plan
➤ Types of startup business loan
- Equipment financing :- Under this scheme, the equipment that is bought by the entrepreneur when starting a business acts as collateral. The borrowers are expected to repay the loan used to purchase the equipment when their business starts to generate revenues. As the equipment is pledged as collateral, the rate of interest on Business loan is relatively low on this type of loan, and the depreciation of the equipment can be used as tax benefits for many years.
- Business instalment loan:- Business instalment loans are offered by many top banks including ICICI Bank, IDFC Bank and Standard Chartered to address the immediate cash and expansion needs of borrowers. Generally, it is offered as an unsecured loan.
- Growth capital & equity assistance scheme by SIDBI:- Many banks and financial institutions offer this type of loan for entrepreneurs to fund their startups. Banks may have different names for these startup business loans. SIDBI, for example, offers Growth Capital & Equity Assistance scheme. The loan can be used for several business needs like the purchase of machinery and raw materials, business expansion, marketing, brand building, creation of distribution network, R&D, software purchases, etc.
Government loan scheme for business startups in India
Raising capital from the market is a difficult task when a business is just a concept or is in the initial stage. The government of India has launched the Startup India Scheme to empower young entrepreneurs. Under the Government’s Startup India Scheme, ambitious businessmen and small businesses can enjoy a host of benefits. Different types of business loans are available for startups and MSME (Micro, Small and Medium Enterprise) under the startup India scheme:
Some of the popular schemes offered by the Government of India for startups and small businesses are as under:
- Pradhan Mantri Mudra Yojana (PMMY): Headed by the Micro Units Development and Refinance Agency (MUDRA), PMMY was launched to offer financial help to the micro-enterprise sector in the country for their all kinds of service, trading and manufacturing activities. Startups can get a business loan ranging from Rs. 50,000 to Rs. 10 lakh under three categories – Shishu, Kishor and Tarun. Mudra loan is offered for vendors, shopkeepers, traders, machine operators, repair shops and small services businesses.
- Bank Credit Facilitation Scheme: Headed by the National Small Industries Corporation (NSIC), MSME units can get funds under this scheme for their financial needs. NSIC has tie-ups with several banks like Yes Bank, Kotak Mahindra Bank, IndusInd Bank Ltd., Federal Bank, HDFC Bank among others to offer loans to MSMEs. MSME units can directly contact any of NSIC branch offices to submit their request.
- Credit Guarantee Scheme (CGS): New and existing MSME units involved in service and manufacturing activities, other than educational institutions, retailers, Self Help Groups (SHGs) and agriculture, can get up to Rs. 200 lakh loan under this scheme.
- Stand-Up India Scheme: Stand-Up India scheme is designed to empower SC/ST and women startups. Under Stand-Up India, Scheduled Caste (SC), Scheduled Tribe (ST) and Woman borrowers can apply for bank loans between Rs. 1 lakh and 1 crore for starting a new enterprise involved in service, trading or manufacturing activities. The loan can be repaid within 7 years with the moratorium period of 18 months.
- Sustainable Finance Scheme: Headed by Small Industrial Development Bank of India (SIDBI), projects involved in green energy, renewable energy, green buildings and eco-friendly labelling can get startup business loans under this scheme. To be eligible to get this loan, the ESCO must be an MSME or otherwise the unit to which it offers its services has to be MSME.
➤ Features of startup business loan
Availing of funding under various startup business loan schemes has multiple benefits as compared to getting funds through other schemes. Features and benefits of startup business loan are as under:
- Borrowers don’t need to pledge collateral or security to get a startup business loan.
- As loan schemes are exclusively designed for SMEs and entrepreneurs, the documentation required is minimal.
- Startup business loans have relatively flexible and longer repayment tenure.
- Quick approval and fast disbursal directly in your bank account.
- Multiple loan schemes offered by several banks.
➤ Important points to consider before applying for startup business loans
Startup business loans are exclusively designed for aspiring entrepreneurs to start a new business or for Loan to MSME looking for expansion of their current business. Consider the following points before applying for a startup loan:
- Keep your business plan ready
- Outline the objectives and goals of your future venture
- Explain the revenue model, estimated growth, estimated sales and estimated profits in your business plan
- Calculate the fund required as precisely as possible
- Neatly summarise the application of funds in your business plan
➤ Documents required for startup business loan
Documentation may also vary from lender to lender based on the loan scheme. Here is a checklist of common documents required for startup business loan:
- Business Plan
- Photographs: 2 copies (passport-size)
- Proof of age: Passport, PAN Card
- Proof of Identity: One of - PAN Card, Passport, Aadhaar Card, Voter’s ID, Driving License
- Address Proof: One of - Passport, Driving License, Aadhaar Card, Postpaid Phone Bill, Voter’s ID
- Proof of Income: Bank Statement
- Bank proof: Cancelled/ scanned cheque, copy of the front page of your passbook
- Signature proof: PAN Card, Passport, Bank verified signature