How to Get a Startup Loan for Your New Business (Step-by-Step Guide)

It is now easier to obtain a startup funding source to help launch your company. The government and private lenders recognize that small businesses are essential to the overall economy; therefore, you should follow this guide: step-by-step through the entire process when applying for a loan with complete confidence that you will be funded!

What Are Startup Loans?

Startup loans can be thought of as an economic "jumpstart." In contrast to a normal business loan that would normally necessitate proof of earnings from the borrower in the past, startup loans are intended to support young companies (companies that are only between 0–2 years old). While the lenders do not care about past profitability or previous financial statements of the startup since it doesn't exist yet, what is important to them are your credibility as a borrower, as as well as the viability of your venture.

Different Types of Loans Available for Startups in India

The Indian economy offers a blend of funding sources provided by the government as well as private entities. This is where first-timers often find themselves at a crossroads, selecting the right kind of "flavor" of loan.

Mudra Loans (PMMY): Ideal for micro enterprises. The scheme comes with three variants known as Shishu (maximum of ₹50k), Kishore (maximum of ₹5L), and Tarun (maximum of ₹10L). As per recent developments, a newer Tarun Plus variant has been launched, allowing you to borrow up to ₹20 Lakh for successful repayment histories.
CGTMSE (Collateral-Free Loans): The ideal choice for startups with absolutely nothing to put as collateral. Here, the government becomes your "guarantor" and allows you to take loans worth ₹10 Crore without having to pledge anything.
Stand-Up India: Special loans offered only to female as well as SC/ST entrepreneurs. It is especially useful for "greenfield" projects.
Equipment Financing: If you're looking for equipment financing, you'll find it easy to get the loans since the equipment becomes your security deposit.

Also Check out: How to Get Your FSSAI License

Loan Programs Initiated by the Government for Startups (India)

Programs	Maximum Loan Amount	Suited For
Mudra Loan Program	₹20 Lakh	For small businesses and self-employed individuals.
Stand-Up India Program	₹1 Crore	For female, and SC/ST entrepreneurs engaged in manufacturing or trading.
CGTMSE	₹10 Crore	Startups that are growing fast and require no collateral.
PMEGP	₹50 Lakh	Rural and urban manufacturing units (includes subsidy).

Eligibility Criteria for Start-Up Loans

Age: Individual’s age should be between 21 and 65 years
Nationality: He/she Must be an Indian citizen with the proper entity registration either Proprietorship, LLP, or Pvt Ltd.
Credibility: This one is key; although certain programs are flexible, a CIBIL score above 750 is considered the magic figure for lower interest rates.
Time of Operations: If the loan is for your “new” business, new typically refers to a minimum of six months of running time, although some governmental programs include even before operations.

Read More: How to Withdraw PF Amount

Documents Required

1. Proof of identity: you should have an Aadhar Card or PAN Card or Voter ID.

2. Proof of address: you should have a utility bill or proof of address on the signed rental lease for your business location.

3. Proof of business: you must obtain your Udyam registration which is mandatory and free) and then your GST registration and then your Partnership Deed will be if that is required.

4. Finances: your bank statement from last 6 months to present, and then projected Balance Sheet from your Bank for the next year or 2 years.

5. “The Pitch”: A detailed Business Plan.

Also Check out: How to Register Your Business on Flipkart

Step-by-Step Process to Get a Startup Loan

Step 1: Establish Your Business Entity

The first thing you must do is formally establish yourself prior to having any discussions with a bank about obtaining financing. You can complete this process while at the same time saving time and money by registering with Udyam, an online government program in India for small businesses.

Step 2: Get Your Credit Score Up

Having a bad credit score might hinder the loan approval process, but that doesn't mean you shouldn’t apply. It's better to spend some time improving your financial status by paying back smaller debts and wait for three months before applying.

Step 3: Make a Proper Business Plan

Avoid being too greedy and writing down "I will earn 1 Crore in Year 1". Be realistic and explain to the banker:

Your plans for gaining customers.
The burn rate of your company.
How and when will you become profitable?

Conclusion

Acquiring a startup loan for a new business venture is no longer the daunting task it once was; however, some "homework" must be done. There are no requirements regarding having an elaborate office set-up or hiring many people; the key is proper documentation and planning.

First, get your credit rating checked. Should the score be high, log onto the JanSamarth website and determine which scheme is suitable for you. The primary purpose of the loan should be development.

FAQs

1. Will the startup loan be possible even for a credit score of 600?

Though difficult, not entirely impossible. While you may find it hard getting the loan from the PSU banks, NBFCs or FinTechs may entertain your application at a higher interest rate.

2. What is meant by 'Collateral-Free' loan?

This means that you don't have to pledge your house, property, or FD to get the loan. Such loans are considered collateral free because of the guarantee schemes provided by the government such as CGTMSE.

3.What is the time period for the whole process?

"In-principle" loan approval from a portal like PSB59 can happen within one hour. Nevertheless, you will have to wait 15 to 30 days for the money to be disbursed in your account post physical documentation.

4. Will it be necessary for me to consult an Accountant for making the Business Plan?

While a self-made plan will do fine for loan applications below ₹5 Lakh, you better engage a Chartered Accountant for a project report above that amount.

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