As India is moving towards self-reliance by promoting a startup ecosystem, more and more entrepreneurs are seeking funds to realise their dreams. Startup ventures need funding to start the business and turn it into a profitable enterprise. There could be multiple reasons why startup loans are required, depending upon the nature and purpose of the business. Personal loans for business startups are one of the most feasible options for entrepreneurs to get much-needed capital without having to give up ownership or control of their venture. Startup loans are also offered to businesses with very limited or no credit history at all.
Advantages of Taking up Startup Loans
Capital is a critical aspect for a startup venture. The success of a venture is highly dependent on its ability to raise sufficient funds and utilise them effectively. A small loan to start a business can offer various advantages for entrepreneurs, such as –
- Convenience: Startup loans are very convenient as they require minimal paperwork and are easily accessible.As long as the eligibility criteria are met, one can expect easy and quick access to a startup loan.
- Better interest rates: The interest rate charged by banks and other financial institutions is comparatively lower than the interest rate charged by private equity lenders. Additionally, these loans offer tax benefits which make them a lucrative option for entrepreneurs.
- Higher loan amounts: Startups can get a high loan amount at affordable rates of interest for meeting their short-term as well as long-term business needs.
- Flexibility: Startup loans are highly flexible in terms of tenure. Banks and finance companies offer various types of loan options for new startups. Additionally, these institutions do not demand a share in the profits or ownership. These lenders are only concerned about the repayment of the loan.
Eligibility Criteria for Startup Business Loan
A startup must meet certain eligibility requirements for availing of a small loan to start a business. A startup loan for a new business can be availed either by an individual or a group of individuals. Some common eligibility requirements and documentation required for a startup loan include –
- The minimum age for applicants is 21 years, and the maximum age limit is 65 years.
- The applicant should be a citizen of India with a valid PAN.
- The applicant needs to provide proof of identity in the form of either an Aadhaar card or a valid driving licence or a passport.
- The applicant has to submit bank statements for the last six months.
- The applicant also needs to provide proof of ownership of the business along with a business plan.
These requirements help the lender verify the credibility of applicants seeking startup loans. Additionally, the credit score or credit standing of the entrepreneur is linked to the startup venture.
Steps for Getting a Startup Loan for New Business
Startup loans are a form of personal loans for business purposes. However, entrepreneurs are expected to fulfil certain requirements before applying for a startup loan.
- Business plan. First of all, entrepreneurs need to prepare a business plan as it helps outline the purpose of the business and its plan. The business plan provides an overview of the business idea, its objective, potential returns, and the expected growth trajectory of the enterprise. Lending to a completely new business involves significant risks. In the absence of detailed financial records, lenders rely on the business plan to judge the repaying capacity of a business. This document gives the lender an idea of the future cash flows of a business. Thus, banks and financial institutions need a business plan to lend even a small loan to start a business as it helps them better understand the viability and sustainability of a startup venture.
- Costs and finances. Next, entrepreneurs should review the cost of setting up and running their startup and the finances available to them. This will help determine the amount of loan required from a startup loan for a new business.
- Personal credit scores and reports. Before submitting a startup business loan application, one needs to ensure that they have their credit scores and other necessary documents in place. As it is a personal loan for business, lenders require these documents to understand the repayment ability and to determine potential interest rates. Other necessary documents include personal tax returns and bank statements.
- Business licences, registrations, and legal documents. Entrepreneurs need a business licence, registrations, and other legal documents as lenders may ask for these documents. Apart from these documents, lenders may also require a startup’s bank statements and financial records.
- Evaluate various lenders. Once all the necessary documents are in place, one needs to evaluate and compare various lenders in terms of the interest rate and loan amount offered, and other loan conditions. Evaluating deals offered by multiple lenders will help in getting the best deal.
- Submit the loan application. After shortlisting the lender, entrepreneurs should review their startup loan application process and compile the necessary paperwork. Nowadays, most lenders accept online loan applications. Once the application and documentation are completed, the applicant will be contacted by a representative of the lender.
Interest Rates and Charges
Startup loans are offered at interest rates that vary between 16% and 27% per annum. The rate of interest depends upon various factors, including –
- CIBIL Score. ACIBIL score is an important factor in determining startup loan interest rates. A healthy CIBIL score reflects the strong financial capability of a borrower, and loans to such applicants are considered a low-risk option for the lender. Thus, a healthy CIBIL score will help you get a startup loan at a comparatively lower interest rate.
- Company prospects. In the case of startups, very little credit history is available, due to which the lender has to judge the borrower’s repayment capacity based on the prospects of the company. If the company has strong prospects, then a lower rate of interest could be charged.
- Collateral. In case an asset is offered as collateral, a lower interest rate could be charged as it reduces the risk for the lender.
Apart from the rate of interest, you need to pay a one-time charge called a processing fee. It covers the cost of processing the documents and other administrative costs associated with the loan approval process. This fee is non-refundable and is calculated as a percentage of the loan amount.
Conclusion
Startup loans can support you in realising your entrepreneurial aspirations. They offer numerous advantages over other sources of finance, especially for a startup. Getting a startup business loan from Tata Capital is easy and convenient. Get in touch for more details.
FAQs
Can I get a business loan for my startup?
Yes, you can get a business loan for your startup. Tata Capital offers unsecured business loans with easy eligibility criteria, attractive interest rates, flexible tenures, minimum documentation, quick approvals, and fast disbursals.
What is the amount of startup loan?
You can get a startup loan of up to Rs 90 Lakhs with Tata Capital. What’s more, you can get one without pledging collateral, at an attractive interest rate and with a flexible loan tenure that fits your financial plans.
Which loan is best to start a business?
The best loan to start a business is a business loan from Tata Capital. Specially designed to meet the needs of a commercial establishment, this loan helps you finance a variety of business needs, from day-to-day expenses to business expansion.
Is it possible to secure a business loan without any revenue?
Securing a business loan without revenue can be difficult because revenue is crucial to judging a business’s creditworthiness and loan repayment capabilities. However, with the country’s growing startup culture, startups can find select investors who might extend finance.
23 September 2024
7 mins read
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