Which is the best way to get a start-up business loan?

Since the Government of India introduced the Start-up India campaign in 2015, it has been a beacon of hope for aspiring entrepreneurs. This initiative has not only led to a surge in the creation of new micro, small, and medium enterprises (MSMEs) but also played a pivotal role in establishing new businesses and increasing employment opportunities. It’s a testament to the government’s commitment to fostering a thriving entrepreneurial ecosystem, ultimately contributing to the country’s socio-economic development.

What is start-up business?

Start-ups or startups are newly established companies created for a distinct product or service. It is a new business venture that has recently been launched and is known as Start-up. A start-up company is established by a single or multiple individuals who may be interested in developing and launching a product or service. A start-up is a fresh business venture that an entrepreneur initiates. Many factors are responsible for launching a new enterprise. An entrepreneur (the individual who initiates the company) can initiate a start-up to address an issue, or he may be interested in being self-employed or may want to showcase his artistic skills in innovative ways.

Start-up business loan

Occasionally, start-ups receive funds from outside for launching the product and bringing it to the market. Entrepreneurs can go for self-funding using their own money or obtain financial support from outside investors such as friends, family, crowdfunding, business loans, and investors. Founders of start-ups aspire to provide society with something it requires but has yet to be developed. Built on innovation, start-ups strive to address shortcomings in current products or develop entirely new goods and services sectors, challenging traditional practices and business strategies within entire industries. In this case, they need a massive amount of funds, mostly borrowed from some financial institutions, and borrowing the funds for start-up business purposes is a start-up business loan.

Benefits of a start-up business loan

There is a good facility for obtaining a start-up business loan, as it takes work to proceed with your business. Business loans help you to grow your business to the next level. There are many unique benefits of availing of a start-up business loan:

• Through start-up business loans, tax relief is given to new entrepreneurs for a period of 3 years.
• If the start-ups get funds from investors, it becomes very costly as they demand high returns. However, this is not so indifferent to business loans.
• When you take a bank loan, there is no need to reduce equity ownership as the bank is only interested in receiving a return at a fixed interest rate.
• It is easy to contact banks for financial assistance, as many banks and NBFCs in India do.
• Another comforting aspect of start-up business loans is the ease of processing loan applications. With most banks having a fixed procedure for handling loan applications, the process is straightforward and can be completed with limited paperwork, giving entrepreneurs the confidence to apply for the financial assistance they need. Another advantage of a start-up business loan is thatthe borrower is fully responsible for profit or loss. However, at the same time, the bank does not hold borrowers accountable for the losses of their businesses.
• One of the key features of start-up business loans is their flexibility. This aspect allows business owners to focus on growth rather than solely on repayment concerns, empowering them to steer their businesses toward success.
• Documents Needed: To secure a start-up business loan, you need to provide simple paperwork without any complications.

Required documents

The necessary documents for applying for a start-up business loan include:

• Applicants and co-applicants must provide KYC documents.
• Any documents, such as a passport, PAN card, Aadhaar card, driving license, or voter Id, can be used for identity verification.
• You can use documents such as electricity bills, phone bills, passport, Aadhaar card, or voter Id for address proof Id.
• You can provide proof of age with a passport or PAN card copy.
• You must present an income statement for evidence of consistent earnings.
• Submission of the bank statement from the past 12 months is required.
• Additionally, you can provide a scanned copy of the cancelled check as evidence of the IFSC code.
• Verification of signature is required. It is to be provided either through bank-verified statements or PAN cards.
• Two passport-size copies of photographs.
• CA has audited financial statements for the last 2 years.
• Income Tax Return for the past year.

Eligibility criteria for start-up business loans

To qualify for a start-up loan for a new business, applicants must meet specific eligibility requirements, which are as follows:

• You must be an Indian resident citizen.
• A minimum CIBIL score of 750 is required.
• You must have been involved in the present business for at least 3 years, and a total business background of 5 years.
• Your business must generate at least Rs. 2 lakhs as annual income.
• Age must be between 21 and 65 years.
• Employment status should be independent contractor.
• A new business can be established as a sole proprietorship, partnership, private or public limited company, or limited liability partnership (LLP).
• Applicants who have not defaulted on any loans with a bank before will be viewed favourably.
• The firm’s annual revenue must not surpass Rs. 250 million.

Top six Govt. schemes for start-up loans

Below are the specifics of loan programs introduced by the Government of India in recent years:

1. Start-up India scheme:
   The Start-up India Scheme is a program initiated by the Indian Government that provides quick business loans to start-ups to support their growth and development. Entrepreneurs can avail of these business loans with appealing interest rates, which is possible through the Start-up India scheme.
2. Stand-up India scheme: 
   The Indian government has launched the Stand-up India scheme to offer loan facilities, especially to individuals from the SC/ST category and females. The main goal of this scheme is to facilitate SC/ST applicants and a female entrepreneur to help them establish their businesses.
3. The website psbloansin59minutes.com.:
   The Indian Government has introduced a website that can approve business loan requests within 59 minutes of application submission. Banks/NBFCs offer an interest rate for this scheme beginning at 8.50% per annum.
4. Loan through the MUDRA scheme: 
   Mudra Yojana is also known as Pradhan Mantri Mudra Yojana (PMMY), which provides loans up to Rs. 10 lakh. The loan can be obtained at reasonable interest rates without requiring any collateral from borrowers.
5. Scheme CGTMSE:
   The Government scheme, Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE), provides financial support to MSMEs through banks or financial institutions. The CGTMSE scheme does not require any collateral to approve loans.
6. Scheme by SIDBI for Growth Capital and Equity Assistance: 
   Under the SIDBI (Small Industry Development Bank of India) scheme, many banks and financial institutions provide specialised loans to support start-ups and their unique requirements.

Process of getting a start-up business loan

The applicants of start-up business loans should analyse different loan options that fulfil their business needs while applying for a business loan. Then, they should follow the procedure to apply for the business loan, which is mention below:

• If you want to apply for a business loan, simply visit the scheme’s website and select the ‘Business Loan’ option to initiate the application process.
• On this page, you must fill in all the mandatory boxes, including the required loan amount, work status, yearly turnover, residence address, current business age, collateral type, and contact number.
• Select the box indicating your agreement with the terms, then click on “Unlock Best Offers.”.
• You must also provide details of company type, business nature, industry type, annual profit, bank account, existing EMI, full name, gender, PIN code, PAN card, birth date, and email.
• Once you have provided all the necessary information, a representative from the bank will get in touch to continue with the loan processing.
• After your loan application is approved, the approved loan amount will be disbursed to your bank account within the specified working days.

Conclusions

Before seeking funding from a banker or investor, an individual must create a detailed proposal outlining the business model, background of the promoters, revenue model, projected sales, growth rate, profits, and other relevant information. Simply put, the proposal should include all aspects of the business.

In addition, individuals applying for start-up loans should have a good credit history and maintain a positive credit score to access loans with lower interest rates. Finally, the candidates need to clear comprehension of the different standards banks use to evaluate, assess, and handle their loan requests and the significance of providing accurate and complete details.

FAQs.