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New businesses require funding from outside sources like a banks or venture capital firms to begin operations. There are several financial avenues available for funding startup businesses in India. Loans for new companies can be obtained from banks, financial institutions, angel investors, and venture capital firms. Most banks in India offer competitive interest rates for business loans depending on:
Banks offer loans to sole proprietorships, partnership firms, and limited companies in the trading, manufacturing, retail, and service industries.
Based on the financial needs of a company, banks offer both working capital loans, and term loans to fund a business. The type of business loans include:
| Interest rate range | 12% to 20% |
| Processing fee | Varies with banks |
| Loan amount | Rs.50,000 to Rs.1 crore |
| Loan tenure | 1 to 7 years |
| Pre-closure charges | Varies with banks |
| Guarantor requirement | Varies with banks |
Banks assess the eligibility criteria of a loan applicant based on:
SMEs are the backbone of Indian economy. However, obtaining funding for SMEs with reasonable interest rates, while providing collateral security can be difficult. Fortunately, there are several government schemes under which small and medium businesses can obtain short-term and long-term loans with lower interest rates from banks like SBI, Bank of Baroda, Andhra Bank, etc. One such scheme is the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme, under which banks can lend up to Rs.1 crore loan without requiring collateral security. Similarly, the Small Industries Development Bank of India offers several schemes to facilitate the growth of SMEs in India.
| Business loans from banks | Funding from venture capital firms |
| There are quick and hassle-free procedures in place for funding application, evaluation, and processing. | It takes more time to process, and evaluate new business funding applications. |
| Individuals have easy access to banks, as they are present everywhere, even in rural areas. | Dependable and suitable venture capitalists can be harder to come by. |
| Banks don’t interfere with a company’s profit or loss. | VC pushes for a strong business growth in the market. |
| 13-17% rate of returns. | Higher rate of returns than banks. |
Individuals who want to be successful in applying, and securing funding for their startup businesses have to be well prepared before approaching a bank with their application. First, create a business model that explains the business profile clearly. Second, calculate the estimated sales, profits, and growth rate of the business. Third, present a projected return on investment. Fourth, choose the right bank for the type of funding required.
Below is a list of banks that offer business loans for startup businesses in India:
A GST rate of 18% will be applicable on banking services and products from 01 July, 2017.
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