With the growing economy and influx of foreign funding, the startup culture in India is growing at a rapid rate providing many job opportunities. The luxury of working at one’s own pace and owning a business has attracted many Indians to pursue their dream.
Financial institutions like banks and NBFCs offer startup loans to entrepreneurs at attractive interest rates to meet their capital requirements.
However, there are different sets of requirements to meet for either of them. NBFCs offer unsecured loans with minimum documentation flexible repayment tenures, while banks require collateral and an excellent credit score.
Hence, in recent days, it has become easier to apply for a startup loan from NBFC (Non-Banking Financial Institution) because of their quick disbursement and long payment tenures.
This article will help you clearly understand how to apply for a startup business loan from NBFCs and what to expect along the process.
Features and benefits of taking a startup loan from NBFCs:
The key features and benefits of startup loan from NBFCs are –
- Unsecured loan without the requirement of collateral.
- Relaxed application procedure.
- Less processing time.
- Quicker disbursement (generally online).
- Flexible repayment tenure.
- Tax relief for the first three years.
How much can you borrow in a startup loan from NBFCs?
You will have a business plan and know the capital required to buy inventories, office space, and other things. Depending on that, the money will differ from person to person. NBFCs offer loans up to INR 50 lakhs to finance your startup.
How to apply for a startup business loan from NBFCs
Every lender will have minimum criteria to fulfill before giving the startup loan.
Know what to expect before applying for the startup loan.
A solid business plan:
Every lender wants to know about your business plan. It is the crux around which the NBFCs will assess if you are capable of running the business.
Therefore, have a solid proposal ready before applying for the startup loan. It should comprise the revenue model, potential growth, profit returns, and how you raise funds to repay the loan.
Eligibility criteria:
Most NBFCs have the following eligibility criteria:
- Must be of the age between 24 – 65 years.
- Must have clean bank records.
- The Business model must be legitimate.
- Must’ve been in business for at least six months from the time of applying.
- Must maintain a good CIBIL score of 600 and above. It varies from one lender to another. Some NBFCs offer startup loans to you despite having a low CIBIL score. But the interest rate might be higher.
Documents required:
Mentioned below are the documents needed while applying for the startup loans from NBFCs-
- Identity proof such as Aadhar, Driver’s license, or Voter ID.
- PAN Card Copy.
- Bank statement for the last 6 – 12 months.
- Income tax records for the past year.
- Business proof such as a business license.
- Partnership deed if the startup has multiple partners.
To make the process smoother, online NBFCs like Money view allow you to check your eligibility virtually and submit a soft copy of the documents, and all it takes is a few minutes of your time.
Application procedure:
You can avail startup loans with a click of a mouse button with Fintech NBFCs like Money View with these simple steps:
- Check your eligibility using the app within 2 minutes.
- Choose the loan amount and desired return tenure.
- Submit the required documents online.
- After your documents are verified and signed the loan agreement, the money transfer will happen within 24 hours to your account.
How to select the NBFCs for startup loans?
You have to review several NBFCs before applying for the loan. Follow their website carefully and examine the eligibility criteria, processing fee, other loan charges, and interest rates. Some NBFCs also have foreclosure charges if you repay the loan before the tenure.
Nonetheless, company history, customer reviews and services, and reputation are the key points that can make you a winner in the business.
To make it short, look out for these three things for the ease of application:
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Online application:
Almost every NBFC has online services available these days. So, opt for the NBFC that has an online mode of application. It will save your waiting time, and you can submit the documents online. Money View is one such online Fintech with a completely online mode of application.
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Affordable EMI:
There are thousands of NBFCs, each of which has varied interest rates. Some charge a higher interest rate to borrowers who do not meet the eligibility criteria. Some offer even with low credit scores. So, do not make haste to select the NBFC.
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Minimum paperwork:
Securing loans is a long process, and it consumes most of the time running behind the counters. Instead, choose the NBFC that requires fewer documents, making the whole process go smoothly.
Fortunately, many NBFCs like Money View meet the above three criteria and give you the finest services.
On a different note, even the lenders you approach will make a background check and verify whether you can repay the loan. So all you got to do is maintain an excellent credit score to open up more choices in selecting the NBFCs.
Interest rates and repayment
The only concern with NBFCs is the interest rate. It charges higher interest rates compared to banks since there is risk involved with unsecured loans.
However, NBFCs have cut down the high-interest rates and have brought them to a competitive level with banks ranging between 15 to 27%.
Some factors that affect the startup loan EMI are –
- Loan amount: This is a significant factor in calculating EMI. The higher your loan amount, the higher is the EMI.
- Interest rate: This will be calculated based on your income, revenue generation model, and credit score.
- Repayment tenure: The duration in which you can repay the loan back.
It is better to start the repayment from the first month to avoid any penalty charges. The repayment tenure can be between 1 month to 60 months, depending on how much you have borrowed.
Note that your business might not have expected yield during the initial months, and be prepared for such a scenario. With online NBFCs like Money view, you can easily calculate EMI through an online EMI calculator.
Risks involved
Although an easy and relaxed application appears convenient to borrow money from NBFCs, some risks are involved. Since these are unsecured loans, the lending standards are low, leading to credit risks.
Another risk is with the interest rates. Despite having good returns from the business, there is a chance of increased debt.
Tough times like a pandemic have been difficult on financial institutions too, and your unsecured loan is the first to sink, putting your business at risk.
Conclusion
It is a dream to own your company with the best financial aid. It is a lot easier to get a startup loan in India today because of the startup-friendly regulations.
It is safe to say that if you are looking for a quick startup loan and have a proper business strategy, NBFCs are your easy choice. Welcome to the modern world where ease of availability prevails over lengthy and rigid norms.