How to Get a Small Business Loan for a Startup

The startup ecosystem is experiencing a boom in India, with many young people choosing entrepreneurship over jobs. The growth opportunities are ample, with incubators and enablers providing support to startups. But, the biggest hurdle faced by budding entrepreneurs is a dearth of funding. Stable funding is the most important founding stone for a successful startup, but it can also become a hurdle.

An entrepreneur can raise funds by crowd-funding, personal loans, angel investors, by acquiring funds from friends and family, but these are unreliable options which provide small amounts of capital. To battle this, the government of India has launched multiple loan schemes for MSMEs and startups. These loans are generally provided collateral free. Keep reading to know how you can get a loan for your new venture.

Types of business loans for startups

Some popular MSME startup loan options are as below:

  • MUDRA loan: this government initiated scheme is launched under three categories- Shishu, Kishore and Tarun. Small business owners can avail loans ranging from Rs. 10,000 to upwards of Rs. 5, 00,000. This scheme is launched under Pradhan Mantri Mudra Yojana (PMMY) and offers loans to all types of trading, servicing and manufacturing units.
  • CGTMSE scheme: The Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE) offers collateral-free MSME loans.
  • Credit Guarantee Scheme (CGS): Under this, loans of up to Rs. 200 lakhs can be borrowed by small business units. This scheme is managed by CGTMSE.

Eligibility criteria

The business loan eligibility to avail a loan for startup can vary across different lenders.

Some common parameters are mentioned below:

  • Applicant must be a citizen of India
  • Minimum age should be 21 years (subject to change)
  • The startup should have a business plan
  • The business should have been in successful operation for at least 6 months (subject to change)
  • Good Credit/ CIBIL score

Steps to get a small business loan for startup

To get a startup loan, you should have a foolproof business plan for the future and to have a clear idea of the amount of capital needed. The next step is to search for various lending institutions and figure out the one best suited for your needs. For the application process, some of the documents required are mentioned below:

  • Proof of identity
  • Address proof
  • Age proof
  • PAN card
  • Bank statements of the last six months
  • Income Tax Returns
  • Business ownership proof

The interest rates and amount loaned also vary depending upon your credit score, business profitability, income, etc. If you are applying with a business partner or co-applicant, you may be eligible to get lower interest rates or greater loan amount. Thus, by ensuring that you fulfil the aforementioned criteria and keeping your documents ready, you can increase your chances of securing a business loan. Lastly, remember to conduct an extensive search for reputed lenders for the best terms.

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