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As a start-up business owner, if you have at any point approached a bank or financial institution for a start-up business loan, then you already know that finding suitable financing is not always easy or quick.

In recent years, India has seen a surge in the number of new enterprises and start-ups, causing many first-generation entrepreneurs to seek business loans for start-up businesses. Not surprisingly, there has been several government schemes and initiatives to encourage funding for new businesses, and even banks and non-banking financial companies (NBFCs) have relaxed their norms and started to offer unsecured business loans for start-ups and small businesses to fund their endeavours.

Today, there are various types of loans for small businesses available. In this article, we will discuss some tips that will help you to increase your chances of getting a start-up loan for your business.

What is a start-up business loan?

As the name suggests, start-up loans are credit offerings by banks/NBFCs to new or early-stage businesses that need funds to expand and scale. These loans are often collateral-free loans offered based on the borrower’s creditworthiness (and may require a guarantor). These loans are usually term loans of short duration that are offered to encourage entrepreneurship.

Key highlights of start-up business loans:

Start-up business loans required for Business expansion, purchase of equipment/machinery, working capital expenses, etc.
Start-up loan amount offered ₹50,000 – ₹50 lakhs (collateral and guarantor may be required)
Business loan interest rate Starting from 13% p.a.
Loan amount tenure 3 – 5 years (varies from bank to bank)
Start-up loan eligibility criteria ·       Must be an Indian citizen

·       Age – 21 to 65 years (check for exceptions)

·       Should have a CIBIL score of 700+ (recommended)

·       Must be able to provide a business plan

·       Availability of collateral/guarantor (optional)

Processing fees, service charges, foreclosure charges, cancellation charges etc. Yes (check with bank)

 

*Borrowers are advised to check with the respective banks/NBFCs on lending details and fees at the time of borrowing

 There are options available to get short term loans for startup businesses. However, if you want to keep the process seamless and quick, here are some tips to help you get business loans to start a new business easily.

How to get loan for business start-ups: 5 effective tips

The first thing you must keep in mind if you want to get instant business loan for start-ups, is that you need to keep all your documents and financial statements up-to-date, have no history of bad debts, have a comprehensive business plan ready, and maintain a healthy credit score of 700+ to get business loan.

1. Keep all financial and business documents up-to-date

If you are running an existing business (i.e., business vintage of 1 year+) and availing a start-up loan to expand your business, it is likely that you already have some of the financial and business documents in place, e.g.

  • ITR (2+ years), GST returns, Udyam certificate (if applicable)
  • Business incorporation and address proof
  • Balance sheet, P/L statement, cash flow statement, bank statement (6-36 months) etc.

If you are a new business looking for start-up loans, ensure that you have your personal KYC documents, ITR details, and financial statements in place. If you have existing loans or credit card bills, ensure you pay them off in time and don’t have bad debt.

If you have a collateral (e.g., property) that you can pledge against the loan, ensure you have the property papers in original and photocopy (for verification). Also, it should not have been pledged for any other loan. You can check the list of documents required for business loans to learn more.

Lenders will want to reduce their risks and verify all documents before offering the loan. They will also check your CIBIL score, and creditworthiness based on which your loan amount, tenure, and interest rate will be determined. Defaulters and failure to repay is a common challenge that all banks face – hence they will only sanction funds if your financial health is steady.

Pro tip: You may consider having a co-partner for your start-up to accelerate your chance to get a loan to start a business. The co-partner’s creditworthiness will also be verified, but it reduces the risks associated.

2. Have a business plan ready

Having a business plan is another proven strategy to increase your chances of getting easy loans for start-up businesses. The idea is simple – a business plan outlines the details about your start-up business. It may include details on:

  • Financial projections, project cost, revenue expected
  • Targeted customers, growth plan, market competition, market potential, scope of expansion
  • Estimated losses/roadblocks, possible tax advantages, funding requests
  • Management team, product/service portfolio, and more

A comprehensive business plan is more likely to build confidence in your start-up idea than mere words. It will tell the lender that you have a practical business concept, evaluated the risks and opportunities, and designed solutions for your growth.

The more comprehensive and realistic your business plan is, the greater your chances of securing a start-up loan.

Pro tip: Your business plan must come with an executive summary that will provide an overview of your plan including details on the loan amount requested, how funds are to be spent, financial projections, returns expected. This will enable lenders to make decisions on whether to proceed with your application or not.

3. Identify why you need a business loan

The ‘purpose’ of availing a business loan should be clear to you. Many a times, owners consider availing a business loan as the most feasible solution for accessing funds. Ask yourself if a loan is the only solution. If yes, identify what the loan will be used for.

For instance, if you require a loan to buy/rent/lease an office or factory space, identify the banks and NBFCs that offer low interest rate business loans to start-ups. Similarly, if you are a woman entrepreneur or have a woman as a co-founder, consider availing start-up business loans for women instead. For example, women entrepreneurs looking at starting a food and catering business, consider the Annapurna yojana scheme offered by the government to avail loans up to ₹50,000.

At times, though availing a business loan in India seems like a quick solution, there may be other options available. Though these are also considered as loans, they come with lower interest rates and better financing options. For instance:

  • If you are awaiting payments from customers, consider availing invoice financing options, i.e., getting paid early against approved invoices for a small discount
  • If it’s an immediate need, consider taking a business line of credit (LOC), so that you spend only what is required and do not have to take a long-term loan

4. Evaluate lenders and type of start-up loan required

The next thing that you must do is to evaluate lenders that offer start-up loans. Couple of things you should check are:

  • Does the lender offer loans for starting a new business without security?
  • What are the loan eligibility criteria, loan amount, and documents required?
  • What is the loan interest rate, processing fees, and effective interest rate?
  • Are there any hidden charges or additional service charges?
  • What is the EMI amount and loan repayment tenure? What are the foreclosure and cancellation charges?
  • How long does it take for the loan to be get approved and disbursed?

There are private and public banks that offer loans to start-ups, and government MSME schemes that aid startups in their growth journeys. Your goal, as a business owner should be to find a lender who can understand your vision and business’s potential and offer loans at competitive interest rates.

 

Top lenders for small business loans in India

Bank/NBFC Loan amount Interest rate Repayment Fees/Collateral
SBI (Simplified Small Business Loan – SSBL) ₹10 – ₹25 lakhs As per requirements, linked to EBLR 12 – 60 months for Dropline Overdraft ₹7500 + applicable charges (unified charges); 40% minimum collateral
HDFC Business Loans Up to ₹ 40 lakhs;

Up to ₹ 50 lakhs (in select locations)

Attractive rate of interest 12 – 48 months flexible tenure 2% processing fee + GST; 4% foreclosure charges + GST (allowed after 6 months); no security required (check conditions)
Tata Capital Business Loans ₹40,000 – ₹75 lakhs 12% starting at 12 – 60 months EMI or Dropline Overdraft facility; collateral-free, 2% processing fees

*Borrowers are advised to check the loan details with the bank/NBFC at the time of borrowing. The figures are indicative and subject to change at the discretion of the lender.

Alternatively, consider getting a collateral-free business loan through Tata nexarc. We have partnered with trusted lenders and offer small business loans up to ₹30 lakhs with low interest rates. You can upload documents online and get a loan offer in as less as 5 minutes. It’s quick, simple, and hassle-free.

5. Prepare your loan application

As a final best practice to get a start-up loan is to prepare your loan application. The online business loan application process has made it convenient for borrowers and lenders to fast track the lending process. With the online process:

  • Borrowers can get information about start-up loans, get answers to queries, compare loan details, download the application form, upload all requested documents, get notifications on email/SMS, check status of loan application, etc.
  • Lenders can verify documents, check borrower’s creditworthiness, keep borrower updated on loan status, accept/decline loan with minimum risks, disburse funds in time, etc.

As start-up/MSME owner therefore, it is essential to ensure that the loan application is done right. As a standard measure, double-check all details furnished to ensure that there are no errors, upload proper documents and photos/images (resolution, size, format), etc. In brief, ensure that your application is accurate, consistent, and relevant.

Getting started with loan application for start-ups

What should you do next? Your next steps should consist of three things:

  • Evaluate your loan requirement and plan how to use the loan amount over the months
  • Visit bank/NBFC websites or Tata nexarc to find the right loan type and lender offering you the loan
  • Compare lenders and loan offers to identify the best loan option for your start-up business

Once you have decided on the lender, apply for the start-up loan and wait for the lender to get back to you. It usually takes 2-4 weeks for banks to verify documents and respond to the loan application. If you apply for business loans on Tata nexarc, the process is usually shorter, and you can get a loan offer in as less as 5 minutes (the approval may take 5-7 days).