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    Loans for Startup Businesses in India

    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:

    • The requested loan amount.
    • Time period of the loan.
    • The type of business.
    • The financial history of the applicant.

    Banks offer loans to sole proprietorships, partnership firms, and limited companies in the trading, manufacturing, retail, and service industries.

    Types of business loans offered by banks

    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:

    • Term loans, long-term loans given for a period of 1 to 10 years, for big investments like expanding a business, launching a new project, and purchasing machinery.
    • Working capital loans, short-term loans, given for less than a year with high interest rates to meet immediate business needs such as paying rent, stocking up seasonal inventory, and paying employees’ salaries.
    • Asset-based loans, obtained by providing collateral security in the form of assets like machinery, real estate, and accounts receivable. The interest rates are higher for asset-based loans compared to traditional loans.

    Interest rate and fee details

    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

    Eligibility criteria to obtain loans

    Banks assess the eligibility criteria of a loan applicant based on:

    • The business model.
    • The projected return on investment.
    • Management experience and expertise.
    • Financial track record of the applicant (good credit score).
    • The capability or security to pay back the loan.

    Loan schemes for startup businesses

    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.

    Loans from banks versus venture capital firms

    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.
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    How to approach a bank for funding of a new company?

    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.

    Types of business loans offered for startups

    Below is a list of banks that offer business loans for startup businesses in India:

    • Citi Bank business loans
    • HDFC Bank business loans
    • SBI business loans
    • ICICI business loans
    • Bank of Baroda business loans
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