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How to Get a Small Business Loan For A Startup?

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Startup India Campaign:

With the announcement of the Startup India Campaign in the year 2015, a large number of new MSMEs (Micro, Small and Medium Enterprise) have come up. The campaign aims at providing finance to startups, which may lead to the emergence of new job prospects and would help in the economic growth of the nation.  

Startup Business Loan:

A small business startup loan is funding to meet the financial needs of a new business. You can use the business loan amount for infrastructure and the procurement of equipment, furniture, inventory, machinery, and supplies.

Eligibility Criteria for Startup Business Loans

  • You must have a well-laid business plan
  • The startup should be a private limited company
  • The turnover of the startup should not exceed Rs. 25 crore
  • Your startup must get approval from the Department of Industrial Policy and Promotion (DIPP)
  • The startup should have a patron guarantee from the Indian Patent and Trademark Office
  • Incubation must provide a recommendation letter for your startup.

Types of Small Business Loans for a Startup 

Small Business Loans for startups are of two types:

  1. Line of Credit: This works the same as a credit card. You do not have to pay interest on the loan amount for the first 9 to 15 months. After that, you can pay the interest only on the sum you have utilized.
  2. Equipment Financing: The loan uses the equipment that you buy from the funds as collateral. You are to repay the amount as you start generating profits from your business. You can use the depreciation of the equipment as a tax benefit for many years.

How to Avail Small Business Loan for a Startup 

Many private equity, debt funding, and Government schemes provide SME loans. Some of the loan schemes are the following:

  • Bank Credit Facilitation Scheme: Under the headship ofNational Small Industries Corporation (NSIC), and in partnership with various NBFCs, this scheme provides funds to meet the credit needs of the MSME units. The repayment period is 5 years and 7 years.
  • Pradhan Mantri Mudra Yojana (PMMY) – Under the reign of the Micro Units Development and Refinance Agency (MUDRA), the scheme offers a loan for activities related to manufacturing, trading, and service. It has three categories:
  1. Shishu
  2. Kishor, and
  3. Tarun 
  • Credit Guarantee Scheme (CGS) – Headed by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), this scheme is for both new and existing MSMEs involved in service or manufacturing activities.
  • Standup India – Headed by SIDBI, this scheme provides loans to startups in manufacturing, trading, or services.
  • Sustainable Finance Scheme – This scheme, headed by the SIDBI, aims at providing loans to startups dealing in green and renewable energy, technology hardware, and non-renewable energy.

 In addition to these Government schemes of funding, various other sources of funds are also available. Some of them are:

  • Business Instalment Loan and Personal Loan: Provided by many NBFCs and NBFC like Fullerton India.
  • Crowdfunding: It is an appeal to the public through online or offline requests to provide funding.
  • Loans from NPOs and NGOs: They provide small loans to startups from minority or economically backward classes of the society.

Documents required for application:

  • Photograph
  • Identity and Address proof
  • Age proof
  • Bank statement and income proof
  • Signature proof

Business startup loans are easy to avail and have many incentives and advantages. These loans do not require collateral or security. Hence before applying for the loan have a look on the business loan documents checklist.  They have straightforward and flexible repayment schedules, minimal documentation, and rapid disbursements of funds.

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