Startup Business Loan: Here’s What You Need to Know!

A startup is a newly established business venture, typically founded by entrepreneurs aiming to develop a unique product or service and bring it to market. Entrepreneurs work hard to scale it to achieve significant growth. India’s startup ecosystem is growing and more entrepreneurs are looking for startup business funding that will make their ideas a reality. According to Tracxn, more than 3.65 lakh startups in India have collectively secured $563 billion worth of startup business funding as of October 10, 2024. To establish a booming company, you need much more than having just a highly innovative idea; acquiring enough funds.

What are Startup Business Loans in India?

A new business startup loan in India, similar to a startup loan in any other country, is a financial instrument meant to provide money for new businesses or startups. In India, startups usually finance their loans via banks, non-banking financial companies (NBFCs), and government schemes. These loans are different from a usual business loan because startups are young, high-growth, and often not profitable or even loss-making companies. Hence a business loan for new ventures may not be backed by assets or cash flows.

Why do Startups Need Business Loans?

Many startups face various issues due to a lack of enough working capital. They often are not able to develop their business, recruit staff, and manage their operational expenses. Thus taking business loans for new ventures becomes an apt choice. These loans are customized keeping entrepreneurial requirements in mind. They are the starting stone to obtain the required capital. Nevertheless, considering these few things mentioned below, before moving forward for such a loan is a must to ensure a hassle-free application process.

The Indian government has created various avenues that are helping startup businesses meet their capital requirements. Let’s discuss various schemes where budding entrepreneurs can avail of new business startup loans.

Pradhan Mantri Mudra Yojana (PMMY)

This scheme by the Government of India aims to provide startup business loans of up to ₹10 Lakh to MSMEs and non-farm enterprises. Under PMMY, the borrower can get loan facilities from Microfinance Institutions (MFIs), Small Finance Banks, Commercial Banks, and Non-Banking Financial Companies (NBFCs). These loans are collateral-free with a repayment period of 1-5 years. Yet it is based on certain factors like the size of your company and its growth phase.

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

This scheme provides collateral-free working capital loans for startups and MSMEs. The scheme benefits collateral-free small startup business loans up to ₹5 crores. It's best for those who want to expand their business. CGTMSE also provides guarantees to lenders in case borrowers default. The guarantee could be up to 50%, 75%, 80%, or 85%

Credit-Linked Capital Subsidy Scheme (CLCSS)

The scheme has been designed to solve the modern needs of industry by granting subsidies to new and existing startups. Startups can get a subsidy of 15% on credit up to ₹1 crore. There are about 11 nodal agencies and banks associated with the scheme that you can approach to get a subsidy.

Bank Loans

A good number of banks and financial entities are helping MSMEs and start-ups by providing business loans for new ventures. First, validate your online application by furnishing the necessary documents and then you will be able to apply for the greater amount of money you need. Once the application is approved, you may use a high-value working capital loan for startups. Just repay the loan amount within a stipulated time through Equated Monthly Instalments.

SIDBI Loans

The Small Industries Development Bank of India (SIDBI) plays an essential role in the development of Micro, Small, and Medium Enterprises (MSMEs) and startups. It provides the necessary funds to entrepreneurs who want to grow and introduce new products and technology in the market. One can find the eligibility criteria and detailed information about the direct loan schemes in the SIDBI portal. The applicant can view the scheme's features and compare them to choose the direct finance loan scheme she/he wants.

National Small Industries Corporation Scheme

National Small Industries Corporation (NSIC), a government agency that supports Micro, Small, and Medium Enterprises (MSME) gives financial aid to those entrepreneurs who want to procure raw materials from the market with credit support for up to 180 days.

Startup Loans In India: Everything You Need to Know

Not everyone is eligible for startup loans in India. Even if you can get a startup loan, is it a good idea to raise the working capital loan for startups? Don't forget that you will have to minimize the costs of capital to obtain the maximum return on equity, and at the same time, keep your shareholders happy. Let’s talk about everything you need to know about startup loans in India.