Choosing the right loan for startup business in India is crucial. Consider factors like your business stage, funding needs, and risk appetite. Explore options like term loans, lines of credit, government schemes, and venture capital.
You should evaluate interest rates, repayment terms, and collateral requirements. Also, ensure that the loan aligns with your business plan and long-term goals. Continue reading further to know more about how to choose the right loan for a startup business in India.
Understanding Your Business Goal and Loan Requirement
When looking for financing for your business, you need to know what your business goals are and what your loan requirements are. Business loans help both existing and new businesses and companies for expansion. The loans can be used for working capital, purchasing equipment, or other required business expenses. It usually fuels some type of growth or keeps the wheels turning for the startup.
India is home to different types of business loans catering to different requirements, including, but not limited to, working capital loans, equipment financing loans, and government-backed MSME loans for startup businesses. To know your business loan, you need to have a set of business objectives, whether it is product development, expanding your operation, new market entry, etc. This will determine what you need for your loan.
Determine the amount of capital that you will require in order to meet these objectives (for set-up expenses, overhead, COGS, promotions and any other costs). Following that, ascertain the amount of the loan, the interest, the repayment schedule, and what kind of loan you require (term loans, working capital loans, or government schemes).
Banks, NBFCs, and even government schemes such as the MUDRA scheme or Startup India initiative provide startup financing. At this stage, the business will need to prepare some essential documents, such as identity proof, business registration, financial statements, income tax returns, etc., as part of the loan process.
For most of the loans, especially for the unsecured ones, the lender demands an eligible CIBIL score, which on average lies between 650–700. Government schemes for MSMEs and startups are more attractive, with lower interest rates and flexible repayment terms. Different loans have different eligibility criteria, but having a good business plan, a profitable business, and enough collateral will help you gain access to loans with relative ease.
Types of Business Loans and Eligibility Criteria
Several types of loans are available in India that your business can choose from, such as –
Working Capital Loan
This is a short-term loan used to meet day-to-day operational expenses, which can include inventory, salaries, and raw materials. It Includes a loan amount of up to ₹40 lakh with a repayment tenure of at most 12 months. They charge higher interest than long-term loans. It’s available through banks and NBFCs, and the loan amount is determined depending on your business needs.
Bill Discounting
Bill discounting is when businesses avail themselves of an advance credit facility short-term loan against their invoices at a discounted price. Interest is charged by the bank on the amount and then paid by the buyer along with the full amount on a due date.
Term Loan
This is a loan that is paid back in instalments on a regular basis over a fixed period of time (12 months to 5 years). You can get short-term loans (for 12 months) or long-term loans (up to 5+ years) amounts of up to ₹2 crores. The lender decides the repayment schedule.
Overdraft Facility
This facility allows businesses to withdraw an amount exceeding their account balance up to a ceiling limit of the sanctioned amount. Interest is charged only on usage, and the limit is adjusted annually based on factors such as credit history.
Govt. Scheme
Government-backed loan schemes such as MUDRA, PMEGP, and Startup India provide funding for individuals, MSMEs, and women entrepreneurs. These services are offered by banks, NBFCs and other financial institutions. Examples include the Pradhan Mantri MUDRA Yojana (PMMY), which gives loans with a cap of ₹20 lakh to small and micro enterprises.
Assessing Startup Business Loan Options in India
While startup business owners in India can face several other challenges, they do have the opportunity for numerous loan options in India, regardless of the business use. If your startup has been running for six months or more, you may be eligible for small business loans. Lenders generally evaluate whether criteria are met based on three factors — age (21-65 years), personal credit score (700+) and revenue projections.
Make an informed decision on the right loan type for your business’s needs, stage, and capability for repayment. Consistently appraise loan terms, explore other funding solutions such as venture capital, and consult with field professionals.
Important Tips for Handling MSME Loan for Startup Business
Some tips to manage startup loans are-
- Know Your Eligibility Criteria: Check whether your startup fulfils the eligibility requirements applicable to MSME loans, including age, credit score, business history, etc., before applying.
- Get Strong Documentation: Gather and prepare all relevant documents, such as business plans, financial statements, and tax returns, to expedite the loan approval process.
- Assess Loan Conditions: Look closely at the size of the loan, interest rates, repayment terms, and any collateral requirements to make sure they fit with your business’s cash flow.
- Keep Good Credit: Having good personal and business credit within your record will help you get better loan terms and conditions.
Conclusion
By evaluating a startup’s revenue potential rather than traditional credit scores, GetVantage provides quick, flexible funding options, allowing startups to scale rapidly while maintaining control of their business. The working capital and embedded finance platform offers non-dilutive, founder-friendly funding up to ₹20 crore.
With fast, data-driven, and unbiased financing, startups can scale quickly without giving up equity. The platform provides real-time business insights, access to a vast partner ecosystem, and a trusted network of mentors, empowering startups to grow efficiently and overcome challenges.
