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Business Loans for Start-ups in India: A Complete Guide!

In this article, learn about the purpose, details and schemes related to business loans for start-ups in India.

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Start-ups in India can take business loans from banks and financial institutions to raise money to start their own business or grow their business at present. The interest rates charged by the banks depend on the amount and duration of the loan borrowed. Currently, it’s something between 2.54% to 7.02%.

Details of Business Loans

Following are the general details of the business loans in India. 

Rate of Interest Upto 21% annually
Amount of Loan Upto ₹.75 lakh 
Tenure of Loan Upto 5 years 
Processing Charges  Upto 6.5% of the amount of loan including GST 

Provisions for Business Loans Provided by the India Government

More than 40,000 companies in India today have an access to private equities and loan financing. However, if the venture is mere an idea, it’s difficult to raise money in the initial stages. Furthermore, because the Indian SME (MSME) sector has partial access to formal financing, the Indian government has chosen to implement a new business loan scheme for MSMEs and startups.

Instead of going via banks, India’s Small Industrial Development Bank (SIDBI) has started providing direct financing to startups businesses and MSMEs. These loans have interest rates that are nearly 300 basis points lower than those offered by the banks.

Some of the Programs Offered by the Government of India for Startups Businesses and MSMEs Are as Follows

  •  PMMY (Pradhan Mantri Mudra Yojana) 

Founded in 2015, this Yojana is led by MUDRA (Micro Units Development and Refinance Agency) to provide credit for all types of activities in the manufacturing, commercial and service industries. The program offers loans ranging from ₹ 50,000 to ₹ 100,000 in three categories: Kishor, Tarun and Shishu. Mudra loans are available to craftsmen, shop owners, repairing shops, vegetable sellers, machine operators, etc.

  • Bank Credit Facilitation Scheme 

This scheme, which is run by the National Small Industries Corporation (NSIC), intends to address the financial needs of MSME units. NSIC has formed partnerships with a number of institutions to provide finance to small businesses. The repayment timeframe for the programme is 5 to 7 years, however, it can be extended up to 11 years in exceptional circumstances.

  •  CGS – Credit Guarantee Scheme

This type of loan is available to new and current MSMEs engaged in service or manufacturing operations, but it is not available to educational institutions, agricultural, retail, self-help groups (SHG), or other similar entities. The (CGTMSE) Credit Guarantee Fund Trust for Small and Medium Enterprises manages the programme, which allows you to borrow up to ₹2 crores.

  • Standup India 

This initiative, started in April 2016 & is led by SIDBI, provides funding to manufacturing, trading, and service enterprises. This scheme offers loans ranging from ₹ 10 Lakh to ₹ 1 crore. Loans obtained through this scheme must be returned within 7 years, with a maximum cessation period of 18 months.

  • Sustainable Finance Scheme 

SIDBI also oversees this programme, which aims to provide financing to businesses that deal in green energy, renewable energy, technical hardware, and nonrenewable energy. This programme was created by the government to support the whole value chain of clean production/energy efficiency and sustainable development initiatives.

  • Psbloansin59minutes.com 

This is an online platform where you may get a business loan if you wish to start one. A loan amount of up to ₹ 10 lakh for the Mudra loan scheme and up to ₹ 5 crores for the MSME loan programme is available based on qualifying criteria and other criteria. A personal loan of up to ₹ 20 lakh, a mortgage of up to ₹ 10 crores, and a car loan of up to ₹ 1 crore are also available.

Details of Start-ups Business Loans Provided by Different Banks

Name of the lender  Interest Rate 
HDFC Bank Bank 15.75% annually onwards 
TATA Capital Bank 19% annually onwards 
Kotak Mahindra Bank 17% annually onwards 
Fullerton India Bank 17% to 21% annually

Now Let’s Know in Detail About the Key Features of Each Bank

HDFC Bank 

Key highlights of HDFC bank 

  • Loans of upto ₹ 40 lakh are available. Only ₹ 50 lakh in a few regions. 
  • The bank will levy a processing fee of 0.99 % of the loan amount. 
  • The loan can be repaid over a period of up to four years.

TATA Capital 

Key highlights of Tata Capital 

  • Loan repayment duration is up to three years. 
  • Loans ranging from ₹ 50,000 to 75 lakh rupees. 
  • The lender will levy a processing fee of 2.50 % of the loan amount + GST.

Kotak Mahindra 

Key highlights of Kotak Mahindra 

  • Loans of up to ₹75 lakh
  • Interest rate levied by Kotak will be based on factors like the total loan amount taken by you and the time of repayment of the loan, etc. 
  • 2% of the entire loan amount along with the GST will be levied as the processing charge. 
  • The repayment time of the loan is for around 5 years. 

Fullerton India 

Key highlights of Fullerton India 

  • Loan amounts of up to ₹50 lakh are available. 
  • The loan can be repaid over a period of up to 5 years. 
  • The loan processing fee might be as much as 6.5% of the loan plus GST.

What are the Eligibility Criteria for Start-up Business Loans?

The eligibility criteria for getting an entrepreneurial loan may vary from lender to lender, but the general criteria are: 

  •  Applicants must be  21 years of age or older and must not exceed 65 years of maximum age. 
  •  The one who is applying for the loan must be an Indian citizen. 
  •  The borrower must have a business plan or model. 

GET A BUSINESS LOAN UNDER START UP INDIA SCHEME

Points to Remember Before Applying for Start-up Business Loans

Startups wishing to obtain this type of loan should make sure that: 

  •  Create a clear and informative business plan. 
  •  Clarify how you will use the amount of loan in your business plan. 
  •  Give a gist of the company’s goals and objectives, along with charts that highlight the company’s potential profits and growth. 
  •  Give a clear approximate amount for the funds.

Documents Needed to Get a Business Loan for Start-ups in India

Following are the documents needed to apply for a Business Loan for Start-ups in India 

Photos  2 passport-size copies of photo 
Identity proof Passport, PAN Card, Voter’s ID, Aadhar Card,  Driving License
Proof of address Driver’s license, Aadhaar card, postpaid bill, voter ID, Passport
Proof of age  PAN Card, Passport 
Bank Statements Last six months
Income proof Income Tax Returns, Salary Slips, 
Proof of signature Bank verified signature, PAN Card, Passport
IFSC Code Proof Canceled/scanned cheques, copy of the front page of the passbook from the same bank account

Process to Apply for Business Loans for Start-ups

Here are some ways to apply for an entrepreneurial loan: 

  •  Apply online by visiting the official site of the lender you want to get a loan, filling out the form and submitting the documents needed. 
  •  Visit the nearest branch and apply for your loan application and supplementary documents. 
  •  Also, you can call the lender’s customer service for assistance. 

Conclusion

In this article, we have discussed the process of applying for business loans for a start-up in India and also discussed the details of various banks and government schemes that provide business loans for start-ups. This guide will help you in knowing all the information required before jumping in to apply for a business loan for your start-up. 

Frequently Asked Questions on Business Loans

What types of entrepreneurial loans are available?

Working capital loans and term loans are the two forms of business loans available from lenders. Term loans can be used to expand your business, purchase equipment, or begin new ventures. These kinds of loans can be taken for one to ten years. On the contrary, the working capital loans are short-term loans that must be repaid within a year and can be used to cover expenses like rent, staff salaries, and inventory replenishment.

How old must a startup be when applying for a startup loan?

To be eligible for a beginning business loan, the company must be absolutely new or under 5 years old. The company’s annual revenues must also not exceed 25 crores

What is the maximum amount that can be claimed as an entrepreneurial loan?

The maximum loan amount you can take out is determined by the lender, as well as other variables including the company’s annual sales and credit history. A Mudra loan, for example, can provide up to ten lakhs for a new company loan

Is a business idea or plan required to claim a start-up loan?

Yes. Most lenders require a business idea or a robust plan when you apply for a business loan. Make sure your business plan is clear and precise, and that it describes your company’s aims and ambitions. In addition, the business plan must specify how the financing will be taken into consideration

What can I do to increase my chances of receiving a business loan?

When applying for a company loan, keep the following points in mind: •Boost your credit score. •Choose your lender carefully if you need a business loan. •Do not apply for more than one loan. •If you already have credit, be sure your EMI is paid off before applying for a business loan. •Apply for a loan amount that you are confident you will be able to repay on time. •Maintain financial statements that have been audited. •Regularly check your credit score.

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