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Startup Loan Schemes in India

Since 2015, there has been an increase in the number of new small and medium-sized businesses in India, thanks to the Startup India campaign. This campaign aims to encourage and support startups by promoting bank financing and providing low-interest loans. By helping startups grow, more jobs are created, which helps the country’s economy to thrive.

To support these businesses, several leading financial institutions offer Startup loans with low interest rates. If you’re interested in starting a new business, there are different loan schemes available, and you need to meet certain requirements to be eligible.Overall, startups are a crucial contributor to India’s growth, and the country has become the third-largest startup ecosystem globally, after the US and China.

The Government of India has introduced multiple loan schemes to support the growth of startups in the country

Small Industries Development Bank of India(SIDBI)

The Sustainable Finance Scheme by SIDBI provides funds for eco-friendly projects that promote energy efficiency and cleaner production. This program offers business loans for various projects such as green buildings, renewable energy, and waste management, covering up to 90% of the project cost. The repayment period ranges from three to six years, including a moratorium period of up to 6 months. To be eligible for the scheme, the business must have undergone Detailed Energy Audit (DEA) and prepared a Detailed Project Report (DPR) certified by BEE auditors and vetted by the EEC at SIDBI.

Standup India Scheme

The Stand Up India Scheme is a government initiative that offers bank loans of INR 10 lakh to 1 crore for first-time ventures in the manufacturing, services, or trading sectors. It aims to support SC/ST or women entrepreneurs and requires repayment within 7 years with a maximum moratorium period of 18 months. Eligible businesses can apply directly at a bank branch, through the SIDBI portal, or the Lead District Manager. The loan is only available for greenfield projects, and applicants can get an 80% rebate after filing the patent application form.

Micro Units Development & Refinance Agency(MUDRA)

The Pradhan Mantri Mudra Yojana (PMMY) is a loan initiative launched by the government of India in 2015. It provides loans up to 10 lakh to small and micro enterprises that are not corporate or farm-based. These loans are classified as MUDRA loans, and different types of financial institutions like banks and microfinance institutions offer them. The loans come in three categories, namely Shishu, Kishore, and Tarun, depending on the loan amount required. Additionally, women entrepreneurs can get loans at discounted interest rates. MUDRA Cards, which are debit cards issued on RuPay platforms, provide hassle-free credit and flexibility for working capital loans. The loans are mainly used for business, working capital, equipment finance, transport vehicle loans, and non-farm income-generating activities. Collateral security is not required for loans up to 10 lakh for units in the Micro Small Enterprises (MSE) sector.

Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE)

The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) provides collateral-free credit to the micro and small enterprise sector in India. Under the scheme, new and existing businesses can avail of loans up to INR 10 lakh without providing collateral, and loans up to INR 1 crore by providing primary security or mortgage of land and buildings. The borrower has to pay a one-time guarantee fee of 1.5% and an annual service fee of 0.75% on the credit facilities sanctioned. The scheme is implemented by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), established by the Ministry of MSMEs and SIDBI.

Udyogini

Udyogini is a business loan scheme for women entrepreneurs implemented by the Women Development Corporation. This scheme provides interest-free loans to women from all sections of society. Eligibility criteria for this scheme are simple, and women entrepreneurs engaged in the SSI sector, retailers, manufacturers, self-employed professionals, traders, etc., can avail of this scheme. Required documents include Aadhaar Card, BPL card, Ration Card, Address and Income Proofs, etc. Different lending institutions have different requirements, and the loan amount can range from INR 3,00,000 to INR 200 lakhs, depending on the institution.

Psbloansin59minutes.com

The Indian government made a website called psbloansin59minutes.com that helps small businesses get loans fast! You can apply for a loan between Rs. 10 lakh and Rs. 5 crores and get approved in just 59 minutes. The banks or finance companies that offer these loans start their interest rates from 8.50% p.a. It’s a fast and easy way for businesses to get the funding they need to grow.

Why a Startup loan?

Startup loans are a great option for new entrepreneurs who want to start their own businesses. Here are some benefits of startup loans:

Tax Relief:
When a new entrepreneur starts a business, it can take some time before they start earning profits. To help ease the financial burden during these early years, the government grants tax relief to new startups for three years. This means that they will have to pay less in taxes, allowing them to invest more money in their business.

Affordable Funds:
Venture capital funding can be expensive for a startup. When venture capitalists invest in a startup, they often ask for a high return on their investment, which can be five to ten times the original amount. In contrast, a bank loan does not require equity dilution and charges a nominal interest rate, making it a more affordable option.

Easy Approach to Banks:
With numerous banks and non-banking financial institutions (NBFCs) in India, it is easier for entrepreneurs to approach their local bank and request funds or credit facilities. This means that entrepreneurs don’t have to travel far or deal with a complicated process to secure funding for their business.

Quick Processing of Loan Requests:
Banks in India have a structured framework for processing funding requests from entrepreneurs. This means that entrepreneurs can expect a quick response from the bank regarding their loan application, with minimum documentation required.

No Need to Share Profits:
When entrepreneurs take a bank loan, they don’t have to share their profits or losses with the bank. This means that entrepreneurs have complete control over their business and can make decisions based on what’s best for the company, rather than worrying about answering to the bank about the profits and losses.

Overall, startup loans offer several benefits to entrepreneurs, including tax relief, affordable funds, an easy approach to banks, quick processing of loan requests, and the ability to maintain complete control over their business.

How to apply for a startup loan?

Apply for a Startup Loan in simple steps:

Step 1: First, you need to find and compare various loan options that suit your business requirements. You can do this by visiting the website of different banks and financial institutions.

Step 2: Once you have found the right loan option, click on ‘Business Loan’ on the homepage of the website. You will be directed to a page where you need to fill in all the required fields, such as the desired loan amount, employment status, annual gross sales or turnover, city of residence, years in current business, collateral type, and mobile number.

Step 3: After filling in the required fields, you need to check the box to agree on the terms and click on ‘Unlock Best Offers.’ Then, you will be required to provide more details such as the Company type, Nature of business, Type of industry, Gross Annual Profit, Bank Account, any existing EMI, Full name, Gender, Residence PIN code, PAN card, Date of Birth, and Email Address.

Step 4: Once you have submitted all the necessary details, a representative from the bank will contact you to proceed with the loan formalities.

Step 5: After the loan application is approved, the approved loan amount will be disbursed to your bank account within the defined working days.

What is the eligibility criteria for Start up loans?

To be eligible for a loan to start a new business, you need to meet certain criteria:

Age Requirements

The applicant must be at least 21 years old and no more than 65 years old when the loan matures. This means that the loan should be repaid before the applicant turns 65 years old.

Self-Employment Status

The applicant must be self-employed. This means that they are running a business or planning to start a business on their own, rather than being employed by someone else.

Business Structure

The startup must be formed as a sole proprietorship, partnership firm, private or public limited company, or a limited liability partnership (LLP). This means that the business should be legally registered under one of these structures.

Credit Score

The applicant should have a credit score of 750 or above. A credit score is a numerical value assigned to a person’s creditworthiness based on their credit history, including their repayment history of loans and credit cards.

No Previous Loan Defaults

Applicants with no previous loan defaults with any bank are preferred. This means that the applicant should have a good credit history with no records of defaulting on loans or credit card payments in the past.

Annual Turnover

The total annual turnover of the firm should not exceed Rs. 25 crore. Annual turnover refers to the total revenue generated by the business in a year. This limit ensures that the loan is given to smaller businesses and not large corporations.

Meeting all of these eligibility criteria will increase your chances of getting approved for a loan to start your new business.

What documents are required for Startup loan ?

To apply for a new business (startup) loan, you will need to submit certain documents. These include:

Application Form

You will need to fill out an application form for the loan. This form should be filled with accurate information and include passport-sized photographs of the applicant and co-applicants.

KYC Documents

You will also need to submit Know Your Customer (KYC) documents for both the applicant and co-applicants. These documents include the Passport, Aadhar card, Voter’s ID card, Driving License, PAN Card, and Utility Bills like Electricity and telephone bills.

Bank Statements

You will need to provide your last 12 months’ bank statement to show your financial history and current financial status.

Income Tax Returns

You will need to submit your last 1-year Income Tax Return (ITR) to show your income and tax payment history.

Business Incorporation Certificate

If your business is registered, you will need to provide the Business Incorporation Certificate to prove that the business is legally registered.

Business Address Proof

You will also need to provide proof of the business address. This can include a rent agreement, property documents, or any other proof of ownership or tenancy of the business location.

Additional Documents

The lender may require additional documents based on their policies and procedures.

Submitting all of these documents will help the lender evaluate your loan application and determine if you are eligible for the loan.

FAQs

How much money can I get through a Business Startup Loan?

The loan amount that can be availed depends on the lender and your requirement. The minimum loan amount has no limit, while the maximum amount can go up to Rs. 2 crore without collateral.

What should I compare before applying for a Startup business loan?

When applying for a start-up business loan, you should compare interest rates, processing fees, service charges, documentation charges, loan cancellation fees, penal charges, stamp duty, prepayment or foreclosure charges, cheque swap/bounce charges, etc.

Is it possible for Startups to get a loan without any collateral?

Yes, some Government-initiated business loan schemes offer loans without collateral/security. These schemes include Mudra Loan under PMMY, Startup India, Standup India, and CGTMSE.

Which Banks or financial institutions provide business loans for startups in India?

Most private and public sector banks, NBFCs, Small Finance Banks, and Micro Finance Institutions offer business loans for startups in India.

What is a Start-up Business Loan used for?

A Start-up Business Loan is used to finance the starting expenses of a new business venture. It helps in providing the necessary funds for purchasing equipment, machinery, raw materials, office space, hiring employees, and other business-related expenses. The loan serves as a primary source of funding for a startup and helps the business to grow and expand in the initial stages.

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