You can avail a Startup business loan from a bank or a financial body in order to raise funds to start a business of your own or expand your current business. The rate of interest charged by the bank will depend on the loan amount availed by you and the repayment tenure.
Business Loan Details
|Interest Rate||Up to 21% p.a.|
|Loan Amount||Up to Rs.75 lakh|
|Loan Tenure||Up to 5 years|
|Processing Fee||Up to 6.5% of the loan amount + GST|
Business Loans for Startups by the Indian Government
There are more than 39,000 startups in India at present who have access to many private equity and debt funding options. However, it is a challenge to get funding when the business is just an idea or is in the early stage. Also, the Micro, Small, and Medium Enterprises (MSME) sector in India only has limited access to formal credit which is why the Government of India decided to roll out startup business loan schemes for MSMEs and startups.
The Small Industries Development Bank of India (SIDBI) has also begun lending to startups and MSMEs directly rather than channelising it through banks. The interest rates on these loans are lower than the one offered by banks by almost 300 basis points. Some of the most notable and popular schemes offered by the Indian government for startups and MSMEs are as follows:
Bank Credit Facilitation Scheme
Headed by the National Small Industries Corporation (NSIC), this scheme is targeted at meeting the credit needs of the MSME units. The NSIC has partnered with various banks to provide loans to the MSME units. The repayment tenure of the scheme ranges between 5 years and 7 years but in special cases, it can be extended up to 11 years.
Pradhan Mantri Mudra Yojana (PMMY)
Launched in 2015, this scheme is headed by the Micro Units Development and Refinance Agency (MUDRA) and it aims at offering loans to all kinds of manufacturing, trading, and service sector activities. The scheme offers loan under three categories – Shishu, Kishor, and Tarun in amounts ranging between Rs.50,000 and Rs.10 lakh. The Mudra loan can be availed by artisans, shopkeepers, vegetable vendors, machine operators, repair shops, etc.
Credit Guarantee Scheme (CGS)
This loan can be availed by both new and existing MSMEs that are involved in service or manufacturing activities but excludes educational institutions, agriculture, retail trade, Self Help Groups (SHGs), etc. Up to Rs.200 lakh can be borrowed under this scheme headed by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
Launched in April 2016 and headed by SIDBI, this scheme extends loans to enterprises in manufacturing, trading, or services. Under this scheme, loans ranging between Rs.10 lakh and Rs.1 crore can be availed. The repayment of loans taken under this scheme can be done in seven years while the maximum moratorium period allowed is 18 months.
Sustainable Finance Scheme
This scheme is also headed by the SIDBI and aims at offering loans to industries that deal in green energy, renewable energy, technology hardware, and non-renewable energy. The government started this scheme with an intent to offer support to the entire value chain of cleaner production/energy efficiency and sustainable development projects.
Startup Business Loans By Banks
|Name of the lender||Interest Rate|
|HDFC Bank||15.75% p.a. onwards|
|TATA Capital||19% onwards|
|Kotak Mahindra||At the discretion of the bank|
|Fullerton India||17% p.a. to 21% p.a.|
- Loans of up to Rs.40 lakh.
- A processing fee of 0.99% of the loan amount will be charged by the bank.
- Repayment tenures of up to 5 years.
- Repayment tenures of up to 3 years
- Loans ranging between Rs.50,000 and Rs.75 lakh.
- Processing fee of 2.75% of the loan amount plus GST will be charged by the lender.
- Loans of up to Rs.75 lakh.
- Interest rate charged by the bank will depend on factors such as the loan amount availed by you, the repayment tenure, etc.
- 2% of the loan amount plus GST will be charged as the processing fee.
- Repayment tenures of up to 4 years
- Loans of up to Rs.50 lakh.
- Repayment tenures of up to 5 years.
- The processing fee charged can go up to 6.5% of the loan amount plus GST.
Startup business loans are of two types -
- Line of Credit
- Equipment Financing.
Line of Credit
A startup business loan in the form of a line of credit works in a similar manner to a credit card. However, the card is tied to the individual’s business instead of their personal credit. One of the best benefits of a small business line of credit is that customers will have no obligation to pay interest on the borrowed sum for the first nine to 15 months, thereby making it easier to cover expenses whilst getting their business to a good start.
In this type of loan for start-ups, the equipment that is bought when starting the business is pledged as collateral, thus enabling the lender to charge a relatively low rate of interest with a slightly higher risk. The customer is expected to repay the amount used to purchase the equipment as revenues are generated from their business. Similar to a line of credit, applicants are expected to have a high credit score (680+), and the documents required to avail equipment financing include a vendor quote, a detailed credit report, and a statement showing the manner in which the customer intends to utilise the equipment. The main benefit of equipment financing is that the depreciation of the equipment can be used by the customer as a tax benefit for many years.
Things to keep in mind when looking to apply for a Startup Business Loan
Startups looking to get such a loan should ensure the following:
- Make a crisp and detailed business plan.
- State clearly how you intend to use the loan amount in your business plan.
- Summarise the objectives and goals of the business along with a chart that will highlight the potential returns and growth of the venture.
- Give a clear approximation of the funds.
Eligibility Criteria for Startup Business Loan
The eligibility criteria to avail startup business loans may vary from lender to lender but the generic ones have been listed below:
- Age of the applicant should not be less than 21 years while the maximum age should not exceed 65 years.
- The applicant must be a citizen of India.
- Applicants should have a business plan.
Documents Required to Avail Startup Business Loan
|Photographs||2 copies (passport-size)|
|Proof of Identity||PAN Card, Passport, Aadhaar Card, Voter’s ID, Driving License|
|Address Proof||Passport, Driving License, Aadhaar Card, Postpaid Phone Bill, Voter’s ID|
|Age Proof||Passport, PAN Card|
|Bank Statements||Last six months|
|Proof of Income||Income Tax Returns, Salary Slips,|
|Signature Proof||Bank verified signature, PAN Card, Passport|
|IFSC Code Proof||Cancelled/scanned cheque, copy of passbook’s front page of the same bank account|
How to Apply for Startup Business Loan?
Some of the ways through which you can apply for a Startup Business Loan are:
- Visit the official website of the lender from you wish to avail the loan and apply for it online by filling up the form and submitting the required documents.
- Visit the nearest lender’s branch and submit the loan application form and documents.
- You can also call the lender’s customer care and request for assistance for applying for a startup loan.
Features and Benefits of Startup Business Loan
- No collateral or security needs to be provided to avail a startup business loan.
- Startup business loans come with easy and flexible repayment tenures.
- The documentation required for availing a startup business loan is minimal.
- The funds are swiftly disbursed to the applicant’s bank account.
- The interest rate charged by the lender will depend completely on the applicant’s credit history.
Frequently Asked Questions on Startup Business Loan
- What are the types of startup business loans that are available to me?
- How old does my startup need to be if I wish to apply for a startup business loan?
- What is the maximum amount I can avail as a startup business loan?
- Is a business plan mandatory for availing a startup business loan?
- Which banks offer business loan for startups in India?
- Is there any government loan for startup business?
There are two types of business loans that lenders offer for you to choose from – term loans and working capital loans. Term loans can be used for expansion of business, purchasing machinery, and launching new projects. These loans can be taken for a period ranging between 1 year and 10 years. Working capital loans, on the other hand, are short term loans that have to be repaid within a year and can be used to pay rent, pay employees’ salaries, stock up inventories, etc.
To avail a startup business loan, your startup should be a new firm or under 5 years old. Also, the firm’s yearly turnover should not be more than Rs.25 crore.
The maximum amount of loan that can be availed will depend on the lender and other factors such as the annual turnover of the company, your credit history, etc. For example, under the Mudra Loan, up to Rs.10 lakh can be availed under a startup business loan.
Yes. Most lenders will ask you for a business plan when you apply for a startup business loan. Ensure that the business plan is clear and detailed with the business objectives and goals outlined. The business plan should also clearly state how the loan is going to be used.
Many lenders in India offer startup business loans and some of these are – HDFC Bank, Kotak Mahindra, TATA Capital, etc.
Yes, there are government loans that you can avail for your startup business. Some of the government loans you can avail are:
- Mudra Loan Scheme
- MSME Business Loans in 59 Minutes
- The Credit Guarantee Scheme (CGS)
- Stand Up India Scheme
- Coir Udyami Yojana
- National Bank for Agriculture and Rural Development (NABARD)
- Credit Link Capital Subsidy Scheme
- National Small Industries Corporation Subsidy
Some of the things you should keep in mind when applying for a business loan are:
- Make sure you improve your credit score.
- Choose wisely the lender from whom you wish to avail the business loan.
- Do not apply for multiple loans. If you have existing loans, make sure you clear the EMIs before applying for a business loan.
- Apply for a loan amount which you know you can repay on time.
- Keep an audited record of your financial statements.
- Make sure you check your credit score on a regular basis.