When it comes to financing your business, finding the right source of funding can be a challenging task if you’re unaware of where to look. As an entrepreneur running a small business, you have two primary options for obtaining loans: government schemes and private lenders.
The Pradhan Mantri Mudra Yojana, SIDBI Make in India Soft Loan Fund for MSMEs, and MSME Business Loans for Start-ups in 59 Minutes are a few of the important government programmes. Each private player offers its own application process and terms and conditions, as well as a variety of funding options.
Small businesses have several loan options available to them.
Small business loan programs offered by the government of India
Small and medium enterprises (SMEs) can apply for business loans from the Indian federal government under a variety of central and state schemes to help them grow. Small businesses can take advantage of the following five government loan programs:
Start-up Loans for MSME Businesses in 59 Minutes
It is a popular scheme launched in 2018 that offers small-scale industrial loans backed by the central government. In spite of the fact that the actual loan process might take up to 12 days, the loan eligibility is communicated within 59 minutes of the loan application being submitted.
The following requirements must be met in order to qualify for a government business loan:
- Verification of goods and services tax
- Related documents
- An account history of at least six months, as well as Know-Your-Customer (KYC) details.
This scheme offers loans with interest rates starting at 8.50%. In addition, interest rates are determined by the nature of your business and your credit rating.
A minimum loan amount of INR 1 lakh and a maximum loan amount of INR 5 crore are available under this scheme. Women entrepreneurs are eligible for a 3% reservation on such loans.
Pradhan Mantri Mudra Yojana (PMMY)
MUDRA is an organization established by the Government of India to provide business finance to micro businesses. Pradhan Mantri Mudra Yojana (PMMY) is a small-scale industry loan administered by MUDRA, with the intention of “funding the unfunded”.
Small business loans are available through the PMMY scheme to a wide range of industries and business activities. Loans up to INR 10 lakh can be availed by MSMEs without collateral. Loans under this scheme are commonly referred to as MUDRA loans. Small businesses that are non-corporate (NCSBs) are any type of trading, manufacturing, or service business, including, but not limited to, the following.
- Vendors of fruits and vegetables
- Shops that repair vehicles
- The artisans
- Industries with a small size
- Drivers of trucks
- Manufacturing units of small size
- Retailers
MSMEs are eligible to apply for SIDBI’s Make In India Soft Loan Fund (SMILE).
The Small Industries Development Bank of India (SIDBI) governs this small business lending scheme. Soft loans are government loans offered at interest rates below market rates by the Government of India through the SMILE scheme.
Under this scheme, the minimum loan amount is INR 25 lakh. There is a moratorium period of 36 months, and the interest rate starts at 8.36%. Repayments are allowed for a maximum of 10 years. In addition to existing service and manufacturing businesses, new MSMEs can apply for this program.
(CGTMSE) is an organization that provides credit guarantees for micro and small enterprises
The Central Government Small Scale Industries Loan Scheme provides loans to small and medium-sized enterprises. Working capital loans of up to INR 10 lakh are available under this scheme without collateral. After mortgaging your business land or assets, you can avail credit facilities up to INR 1 crore. The programme is intended for newly established or currently operating MSMEs involved in service or manufacturing operations (excluding retail trade), as well as for agricultural and educational institutions and self-help organizations.
Stand-Up India
Stand-Up India is a government initiative launched by the Small Industries Development Bank of India (SIDBI) to provide small business loans to women entrepreneurs.
Small businesses can avail of loans between INR 10 lakh and INR 1 crore under this scheme. Your loan will cover approximately 75% of your business project, and the interest rate is calculated as the bank’s marginal cost of funds-based lending rate (MCLR) + 3% + tenure premium.
Those in the manufacturing, trading, or service sectors are eligible for this program.
Small businesses in India can access loans through private companies
Business Line of Credit
This is a flexible business loan that allows the borrower to only pay interest on the money they borrow. As with a credit card, the borrower can draw and repay funds as they need, as long as they do not exceed their credit limit.
This type of loan is ideal for small businesses looking to manage their cash flow easier, purchase inventory for a big order, or cover unexpected expenses. These loans are available from banks, non-banking financial companies (NBFCs), and fintech companies without collateral.
Working Capital Loan
The purpose of this short-term loan is to generate cash flow to cover day-to-day expenses like advertising, payroll, and inventory purchases. Emergency costs beyond those covered by the line of credit can also be covered by working capital loans. Banks, NBFCs, microfinance institutions, and digital lenders offer these loans, which can be secured or unsecured.
Term Loan
A secured loan or an unsecured loan can be used. It is common for small businesses to obtain loans from banks, NBFCs, microfinance institutions, and digital lenders. A borrower’s credit history determines the amount of the loan. Unsecured loans usually last one to five years, while secured loans can last up to 15-20 years.
In order to support business growth, businesses tend to borrow such loans for capital expenditures. EMIs are usually used for repayment.
Merchant Cash Advance
Another type of loan that helps small businesses is this one. Lenders assess a borrower’s creditworthiness by assessing their daily debit card sales or digital transactions. A portion of the borrower’s daily debit or credit card sales or digital transactions is then used to repay the loan. For the borrower to manage the payments, cash flow must be sufficient.
Invoice Financing
Factoring is a popular term for this type of loan.
An invoice is presented to the lender by a small business owner, and the lender pays off the invoice with funds. Business owners usually use this loan when they have a time lag between invoices and payments because the lender fixes the interest rate and tenure in advance.
There are other types of loans available, including loans against property, equipment financing, overdraft facilities, and business credit cards. A variety of factors are involved with each of these loans, such as collateral requirements, interest rates, and repayment terms.
Considering a Startup Business Loan? Here are some things to consider
The following requirements should be met by startups seeking such a loan:
- Plan your business in a clear and detailed manner.
- Your business plan should clearly state how you intend to use the loan amount.
- Create a chart that outlines the potential returns and growth of the business, along with the objectives and goals.
- Provide a clear estimate of the funds.
Eligibility Criteria for Startup Business Loan
The following are the generic eligibility criteria for startup business loans, which may vary from lender to lender:
- Applicants should not be younger than 21 years of age and not older than 65 years of age.
- The applicant must be an Indian citizen.
- Business plans should be provided by applicants.
Startup Business Loan Documents
| Photographs | Two copies (passport-size) |
| Proof of Identity | An Aadhaar Card, a Passport, a PAN card, a Voter’s ID, and Driving License are all required |
| Address Proof | Postpaid phone bill, passport, driving license, Aadhaar card, voter’s identification |
| Age Proof | PAN card, passport |
| Bank Statements | The past six months’ Bank statements |
| Proof of Income | A copy of your income tax return, a copy of your salary slip, etc. |
| Signature Proof | A bank-verified signature, a PAN card, and a passport |
| IFSC Code Proof | Copy of the front page of the passbook of the same bank account with a canceled/scanned check |
What are the steps for applying for a startup business loan?
An application for a Startup Business Loan can be submitted in the following ways:
- By visiting the lender’s website and filling out the form and submitting the required documents, you can apply for the loan online.
- The loan application form and documents must be submitted to the nearest lender’s branch.
- For assistance in applying for a startup loan, you can call the lender’s customer service department.
Features and Benefits of Startup Business Loan
- Startup business loans do not require collateral or security.
- There are easy and flexible repayment terms available for startup business loans.
- It is not necessary to submit a lot of documentation when applying for a startup business loan.
- The applicant’s bank account is credited immediately with the funds.
- An applicant’s credit history will determine the interest rate charged by the lender.
Conclusion:
It’s important to explore both government and private funding options when seeking funding for your business. Private lenders offer a variety of financing solutions tailored to your specific needs, while government schemes provide accessible and streamlined options. Select the funding source that aligns with your business goals and requirements by conducting thorough research, comparing terms and conditions, and comparing terms and conditions. Your business can be successful if you have the right funding in place.
