Business start-up loans are business financing instruments that help new businesses grow and prosper. A startup loan provides funds to people who are willing to start a new business or who have recently started a business and need funds to run their business.
Advantages of startup loans
• Easy access to funds
• The equipment acts as collateral
• Business owners with little or no financial history can avail of this loan.
What you need to take advantage of an initial business loan
• A solid business plan
• A clear approximation of the required fund
• Plan showing a clear growth potential of your business
• Clearly defined goals and objectives
Startup Loan Features
• In terms of availability, these loan entrepreneurs must demonstrate their personal credit history and a clear business plan.
• The loan is only approved if the lender can see potential in the business for profit in the near future.
• Many financial organizations offer these loans online, and if they are offline, it is a quick process, unlike a normal business loan.
• The initial business loan requires less documentation.
• Flexible holding period.
• Lenders generally do not ask for any collateral or collateral for business start-up loans and, if requested, business requirements and machinery can also act as collateral.
• Competitive low interest rates on other business loans, but it also depends on the person’s credit history.
• Flexible payment options.
Types of startup loans
Commercial credit line
A business line of credit is the same as a credit card. The difference between the two is that here the funds can only be used for business and not for individual use.
The biggest advantage of this loan is that you get a maximum limit and one can withdraw as many times as they want within that particular limit according to their requirements. The interest charged is only on the amount borrowed instead of the maximum withdrawal limit.
In this loan, the commercial equipment acts as collateral. Since the loan is guaranteed, the lenders charge a lower interest rate, but it also depends on the credit history of the borrower. The borrowed amount can be used to purchase equipment, inventory, etc.
Government business loans
1. Startup India:This scheme has been started by India to support startups and small industries. The scheme is led by the Small Industries Development Bank of India (SIDBI). The scheme offers compound loans between ₹ 10 Lakhs and ₹ 1 Cr to entrepreneurs. The scheme covers 75% of the total cost of the project.
2. Credit Guarantee:This scheme is also an initiative of the Government of India. It is run by the Micro and Small Business Credit Guarantee Trust Fund (CGTMSE). The scheme offers term loans and working capital loans to business owners. Under this scheme, one can get up to ₹ 100 Lakhs per loan unit.
3. Rooftop Solar PV Project Loan: The project is led by the Indian Renewable Energy Development Agency (IREDA). The amount of IREDA will be 70% of the cost of the project with a minimum contribution from the promoter of 30%.
4. Pradhan Mantri Mudra Yojana (PMMY): This scheme is a great initiative of our government to promote and provide support to small and medium-sized enterprises in your country. PMMY is run by Micro Units Development and Refinance Agency Ltd. (MUDRA). MUDRA offers incentives under 3 different schemes-
1. Shishu: Under this scheme a loan amount of up to ₹ 50,000 can be offered.
2. Kishor: This scheme can cover the loan amount above ₹ 50,000 but up to ₹ 5 Lakhs.
3. Tarun: Under these loans above ₹ 5 Lakhs and up to ₹ 10 Lakhs can be covered.
5. Bank Credit Facilitation Plan: This plan is run by the National Small Industries Corporation (NSIC). The plan aims to meet the credit needs of MSME units within India that have growth potential. The NSIC has partnered with many banks to make loans to a large number of MSMEs. The reimbursement tenure under this scheme varies from 5 to 7 years, but can be increased to 11 years in special cases.
6. Multiplying Grant Program (MGS): The scheme is headed by Department of Electronics and Information Technology (DeitY). This scheme is applicable to the IT Service industry, analytics, enterprise software, technology hardware, and AI. Under this scheme, a maximum loan amount up to ₹ 2 Cr per project can be availed and the duration of each project should be two years or less than it.