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Startup Business Loan: A Step-by-Step Guide for Small Businesses
With the launch of the Startup India campaign in 2015, the number of corporate startups, new-age Micro, Small, and Medium Enterprises (MSMEs), and so on have increased. This has helped in creating more job opportunities, leading to the growth of the nation’s economy while reducing unemployment to a great extent. Adding to this, the Startup India campaign has also promoted banking and non-banking financial constitutions by aiding startups with business loans. The loans are offered at convenient interest rates, helping startup owners repay the amount easily. Irrespective of its size, in businesses, capital is of utmost importance and taking loans for starting your business is the right way to go.
However, before applying for the loan, there are factors that you will need to consider. Applying for a startup loan for a new business without knowing its facts can be a risky affair. Other than this, being a business owner, you should also have a plan on how you will be using the money, what repayment tenure will be convenient for you, and so on. Being irresponsible about the capital can lead to unpaid debts or even bankruptcy. So, to help you apply for a business loan in a hassle-free manner, here is a step-by-step guide that talks about everything related to the loan.
Factors to Consider While Applying for the Startup Business Loan
- Determine the Loan Amount You Need
While applying for a loan amount that’s a little more than what you need is a good thing; try not to go over the limit. Having extra capital can help your business in many ways, but you need to keep in mind that the loan interest rate will be more. It is always a smart thing to determine the loan amount you need before applying for the new business loan. Plan out all the expenses of your business, like transportation, workforce, miscellaneous expenses, and so on. Once you have this ready, you will get an idea of the required loan amount.
- Look for the Best Financial Corporations
In India, both banking and non-banking financial corporations offer startup business loans that you can apply for. However, each of the corporations has its set of interest rates, tenures, schemes, and all. You need to make sure that you apply for a business loan with the financial constitution that suits your preferences. At Muthoot Finance, we offer business loans for new businesses at the best interest rates with great schemes and offers, flexible tenure, repayment options, and much more.
- Check Your Credit Score
The credit score is one of the most important factors that you need to consider before you apply for a business loan. It is a three-digit number that helps in describing the credit merit of a person who has taken a loan. If you had taken a loan earlier or you have credit card bills, check if the repayment was done on time or were there any default, and so on. Having a good credit score increases the chances of loan approval to a great extent.
Common Eligibility Criteria for Availing a Small Business Loan
While each banking or non-banking financial institution may have different eligibility criteria, here are the common criteria that you should know before applying for startup loans –
The minimum age of the applicant should be 18 years or above (the upper age limit varies).
The applicant must be a citizen of India and should not have any criminal record, whatsoever.
The applicant must not have any previous loan default with any banking or non-banking financial corporation.
The applicant must have a good credit score (700 or above is considered to be an excellent score).
The startup should have a well-defined business plan.
The startup should be formed as a sole proprietorship or in partnership, as a private or public limited company or as a limited liability partnership (LLP).
Documents Required for the Small Business Loan
Given below are the common documents required for availing a loan for startup, apart from the ones that your lender may ask –
Duly filled loan application form.
A detailed, self-drafted business plan.
KYC documents like AADHAR Card, PAN Card, Passport, Utility Bills, and so on. If the startup is in partnership, then the KYC documents of all the partners are needed.
ITR and bank statements of the last 12 months.
Benefits of Availing Small Business Loans
Regardless of whether you avail the loan from a bank or NBFC, small business loans offer a lot of benefits, like –
Startup owners and new entrepreneurs can enjoy tax exemption for 3 years.
Whether the startup gets good profits or undergoes loss, the owner(s) is not answerable to the bank. Any significant gain or unprecedented loss belongs to the startup solely.
It is simpler and easier to get startup loans from banks and NBFCs in India. They offer various schemes that work in your favour and much more.
Every business dream needs to be pursued and with the startup business loans, you can make your dream of being an entrepreneur come true.