Starting a new business in India can be an exciting as well as a challenging endeavour and, especially start-ups, face several challenges while trying to secure financing to get their ideas off the ground (Photo: Pixabay).
Fortunately, India has a slew of financing options and schemes designed to
support budding entrepreneurs.
In this article, we will explore how start-ups in India can get loans, information on equated-monthly instalments (EMIs), interest rates, maximum and minimum loan amounts, and real-life instances of successful start-ups.
Types of loans for start-ups
Mudra loans for start-ups
Maximum loan: Up to Rs 10 lakh
Minimum loan: Varies
Interest rate: Varies
EMI: Depends on the loan amount and tenure
These loans fall under three categories — Shishu (loans up to Rs 50,000), Kishor (loans between Rs 50,000 and Rs 5 lakh), and Tarun (loans from Rs 5 lakh to Rs 10 lakh), each catering to different funding needs and age groups.
Example of Mudra loan
Rajesh, an aspiring entrepreneur, started a micro manufacturing set up for eco-friendly packaging materials.
He took a Mudra loan of Rs 5 lakh in the Shishu category to buy machinery and raw materials.
His EMI for a 5-year tenure loan is around Rs 10,000, with an interest rate of 8 per cent.
Start-up India loans
Maximum loan: Rs 5 crore
Minimum loan: Varies
Interest rate: Competitive
EMI: Customised based on the loan agreement
Under the Start-up India initiative, numerous financial institutions as well as banks offer loans tailored to meet the unique requirements of start-ups.
These loans can be utilised for working capital, technology adoption, or even growth.
Example of Start-up India loans
XYZ Tech Innovations, a technology start-up, clinched a Rs 2-crore loan from a top bank to develop its groundbreaking app.
The start-up managed a competitive interest rate of 9 per cent, leading to a monthly EMI of nearly Rs 3.5 lakh for a 5-year period.
Credit Guarantee Fund Trust for Micro and Small Enterprises
(CGTMSE)-backed loans
Maximum loan: Rs 2 crore
Minimum loan: Rs 10 lakh
Interest rate: Competitive
EMI: Varies based on loan amount and terms
The CGTMSE provides collateral-free loans to start-ups as well as MSMEs.
This scheme minimises the risk for lenders and encourages them to extend credit to budding entrepreneurs.
Example of CGTMSE loan
A fashion boutique start-up, Trendy Threads, sought a Rs 20-lakh loan under the CGTMSE scheme to grow its product line.
The start-up managed to get the loan at an attractive interest rate of 10 per cent, paying an EMI of around Rs 40,000 per month for a 5-year period.
Stand-Up India loans
Maximum loan: Rs 1 crore
Minimum loan: Rs 10 lakh
Interest rate: Competitive
EMI: Decided by the lender
The Stand-Up India scheme is mainly for women entrepreneurs and individuals belonging to the scheduled castes and tribes.
It gives financial assistance for setting up greenfield enterprises in manufacturing, trading, or the services sectors.
Example Stand-Up India scheme
Sita, a youth entrepreneur belonging to a marginalised community, started a retail grocery store with a Rs 15-lakh loan under the Stand-Up India scheme.
Her lender gave her a competitive interest rate of 9.5 per cent,
which is an EMI of about Rs 32,000 per month for a 7-year period.
Tips for securing start-up loans
Develop a comprehensive business plan
Lenders often require a well-documented business plan, which outlines your start-up’s goals, revenue projections, and repayment strategy.
Do research to compare lenders
Check out multiple financial institutions, banks, and government schemes to find the best loan option that suits your start-up’s needs.
Maintain a good credit score
A strong credit history raises your chances of loan approval and
may result in lower interest rates.
READ ALSO | Determine your financial credibility through CIBIL score
Ready a collateral, if needed
Some loans may need collateral, so be prepared to provide assets
as security, if required.
Go for expert advice
Consulting with financial advisors may be of help to navigate
the loan application process and strike a favourable deal.
Documents needed for start-up loans
Proof of individual identity
Address proof
Last 3 years Income Tax returns
Last 3 years Sales Tax returns
Last 6 months bank statement that must be authorised by the branch manager
Details of Profit and Loss and Balance Sheet statements for the last 3 years
Conclusion
You have options like Mudra loans, Startup India loans,
CGTMSE-backed loans, or Stand-Up India loans.
However, it’s absolutely necessary to understand the EMI, interest
rates, maximum and minimum loan amounts, and the overall terms and conditions.
So, securing loans for start-ups in India is a crucial step
towards realising your entrepreneurial dreams and there are options galore.
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