Startup Business Loan

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Any funds loaned specifically to startups that have little or no history is known as a startup business loan. Using these loans a startup can grow and expand their business extensively.

Since the startup ecosystem is budding today, more and more organizations and governments are encouraging the need to provide funding to help such enterprises. Nowadays a startup has many different options to procure funding – microloans, business credit cards, business grants, crowdfunding, P2P lending etc.

How can one apply for a Startup Business loan?

The government has launched the Pradhan Mantri Mudra (Micro Units Development & Refinance Agency) Yojana scheme to provide finance to startups. Under this scheme small businesses can borrow collateral free loans from banks up to Rs.10,00,000 for non-farming income generating activities. The loans aren’t provided by Mudra directly but facilitated through different banks, NBFCs and financial institutions.

What are the loans available under the Pradhan Mantri Mudra Yojana?

The MUDRA Bank grants three types of loans, based on the stage of growth and financial requirements of the startup. These 3 loan types are

Shishu: For startups that require a loan within ₹50,000
Kishor: For startups that require a loan above ₹50,000 and within ₹500,000
Tarun: For startups that require a loan of more than ₹500,000 and up to ₹10,00,000

Who is eligible for a startup business loan in India?

To be eligible to apply for a startup business loan in India under the Pradhan Mantri Mudra Yojana one must meet all the below criteria-

    1. The applicant should be a citizen of India
    1. The applicant should have a business plan
    1. The business should belong to the non-farm income generating category, such as manufacturing, processing, trading or service sector
    1. The maximum loan amount required should be up to ₹10, 00,000
  1. To avail loans under PMMY, the borrower/applicant may have to follow the usual terms and conditions of the lender

In a nutshell the MUDRA Loan can be borrowed for various purposes which provides income generation and employment creation in manufacturing, services, retail and agriculture allied activities.

What are the steps for an entrepreneur of a startup business in India to apply for such a loan?

As a startup you must follow these 5 steps to be able to avail loans under the MUDRA Yojana –

Step 1: Procure the scheme application form from the nearest bank associated with the scheme. To know this list of banks just visit the MUDRA portal.

Step 2: After procuring the form, you must fill up the application form with all the details and submit it along with documents required.

Step 3: You will need to provide documents that serve as an identity proof, residential proof, proof of business address, proof of category of business along with your photograph. Also note that depending on the type of loan you need additional documents may be required.

Step 4: The banks does not charge a processing fee for loans under this scheme.

Step 5: Upon loan approval you will receive a MUDRA Card, which is functionally similar to a credit card.

Other than loans under the MUDRA scheme there are many other loan schemes for startups from the government. But before applying for any of these loans you must remember the following pointers –  

    1. When applying for a loan scheme offered by the government your personal background will be checked. So, crimes committed can disqualify you or delay your process of getting the loan
    1. Your resume or business background will also be asked for, so keep the details of the business and your experience ready.
    1. They will also ask for a business plan. So make sure you write a good, detailed and efficient business plan in the loan application.
    1. Your personal and business tax returns will also be checked for the past 3 years to make sure these are updated
    1. You will have to furnish the business’ financial statements that show the profit and losses along with your bank statements, balance sheets, and cash flow forecasts.
  1. You will need legal documents that prove that your business is run legally.

To stay updated with all the government schemes for startups in India you must register under Startup India. This is a flagship initiative of the Government of India, intended to build a strong ecosystem conducive for the growth of startup businesses and to drive sustainable economic growth and generate large scale employment opportunities. The Government through this initiative aims to empower startups to grow through innovation and design.

Other than loan schemes this portal also has information about several incubation centers, easier patent filing, tax exemptions, ease of setting-up of business, INR 10,000 Crore corpus fund, and a faster exit mechanism, among others. To know more just register on their portal

Step 1: Log on to the Startup India portal

Step 2: Enter your legal entity

Step 3: Enter your business registration number

Step 4: Enter the registration date

Step 5: Enter your PAN number

Step 6: Enter the address, pin code and state

Step 7: Enter details of authorized representatives

Step 8: Enter the details of partners

Step 9: Upload the required document (self-attested)

Step 10: File the registration certificate of the company

Pointers to remember if you wish to avail loan schemes under Startup India –

    1. The startup must be a new firm or not older than 5 years. The total turnover of the firm should not exceed Rs 25 crores.
    1. The company must be a private limited company or a limited liability partnership (LLPs).
    1. To get approval from DIPP, the firm should be funded by an Incubation fund, Angel Fund or Private Equity Fund.
    1. The firm should have obtained a patron guarantee from the Indian patent and trademark office.
    1. The firm must have a letter by incubation.
    1. The firm must provide innovative scheme and products
    1. The firms should have obtained approval from the Department of Industrial Policy and Promotion (DIPP).
    1. Angel fund, Incubation fund, Accelerators, Private Equity Fund, Angel network must be registered with SEBI.
  1. The interest rates of loans under this scheme will range from 10.99%-21% annually and tenure will be up to 5 years, although this might change across banks. Processing fees may be charged depending on the borrowed amount

So now that you know all about the loans for startups in India, if you need funding you know where to go!

That was all about Startup business loans, stay tuned for FlexiLoans products catered towards startups. Until then any entrepreneur can apply to our business loans by clicking here.