Starting a business is starting a new journey. You have an idea, you have energy, and you have the dream of building something of your own. But dreams alone are not enough. In order to turn your dream into reality, you need money. When people begin their startup, they usually depend on their personal savings and help from family or friends. But this money is often not enough. Running a business is not just about building a product; you also need to spend on:
- Office space or shop rent.
- Salaries for employees.
- Marketing and advertising.
- Raw materials, tools, or machines.
That is why loans become important. A startup loan gives you the money to start and grow without giving away ownership of your company. Unlike investors, banks or financial institutions do not ask for a share in your business. They only want you to repay the money with interest.
So, if you are planning to start your business, understanding how to get a loan, which loans are available, and how to prepare for it, is very important.
Why Do Startups Need Loans?
Every startup needs money at different stages. A loan can help you:
- To start the business
- Pay daily expenses like office rent, electricity, and salaries.
- Buy machines, laptops, or vehicles.
- Expand to new cities or markets.
- For marketing and branding
- For research and development (R&D)
- Manage cash flow when payments from customers are delayed.
- Build a credit history so it becomes easier to get bigger loans later.
The good part about loans is that, unlike investors, banks or lenders do not take a share in your company. You remain the complete owner of your business.
Types of Startup Loans in India
There are many options to borrow money. Let’s see them one by one.
1. Bank Loans
If your startup has proper registration and documents, banks can be a good choice for obtaining a loan. They give:
- Term loans – You take a fixed amount and pay it back in instalments.
- Working capital loans – For daily business expenses.
- Overdrafts or cash credit – You can withdraw more than what you have in your account, up to a limit.
Banks usually ask for collateral (property, gold, fixed deposit, etc.) and a good credit score.
2. NBFC Loans
NBFCs (Non-Banking Financial Companies) are like banks but with simpler rules. They give loans faster than banks and with less paperwork. But the interest rates are higher than those of banks. This is useful for startups that:
- Don’t have a long financial history.
- Don’t have enough collateral.
3. Government Loan Schemes
The Government of India supports small businesses and startups with special schemes:
- MUDRA Loan – Up to ₹10 lakh for small businesses, no collateral.
- CGTMSE – Loans up to ₹2 crore without collateral.
- Stand-Up India – Loans from ₹10 lakh to ₹1 crore for women and SC/ST entrepreneurs.
- SIDBI Loans – Specially designed for small and medium businesses, it is for innovative startups and small industries.
4. Microfinance Loans
These are very small loans, usually below ₹1 lakh, given by Microfinance Institutions (MFIs). They are mostly for people in rural or semi-urban areas who want to start very small businesses.
5. Venture Debt
Some startups that already have investors can also take venture debt. This is a loan specially meant for fast-growing startups.
Steps to Get a Startup Loan
Getting a loan is not difficult if you follow the right steps.
Step 1: Make a business plan
Every lender wants to know how you will make money and repay the loan.
Your plan should explain:
- What your business does.
- Who your customers are.
- How will you earn?
- How much profit do you expect?
Step 2: Decide how much money you need
Be clear about how much money you need and why you need the money. If you borrow too much, you will have to pay high EMIs (monthly instalments), which can burden your business in the early stage, and if you borrow too little, the money may not be enough, and you may have to apply for another loan soon.
Step 3: Check the eligibility criteria for obtaining a loan
Every lender, whether a bank, NBFC, or government scheme, has certain eligibility rules. Before applying, you must check these. Check for:
- Age of the applicant
- Credit score (CIBIL score)
- Type of the business
- Business registration
- Turnover of the business
- Track record of the business
- History of the business with the bank
- Collateral or security
- KYC documents
Step 4: Collect the necessary documents
You will need:
- Aadhaar and PAN card.
- Business registration documents – Company incorporation certificate/partnership/deed/LLP agreement
- Bank statements for 6 to 12 months of the business
- Financial statement of the business
- Income Tax Returns for the last 2 to 3 years
- GST registration (if applicable).
- A clear business plan.
- Collateral documents (if needed)
Step 5: Apply for the loan
Submit your application to a bank, NBFC, or government scheme.
Quick Tip – Always compare interest rates and terms of the loan before choosing any institute.
Interest rates
- Banks: 8% – 15% per year.
- NBFCs: 12% – 24% per year.
- Government schemes: 7% – 12% per year (sometimes with subsidy).
Common Problems Every Startup Faces
Many startups find it tough to get loans because:
- They don’t have collateral.
- They don’t have a credit history.
- Their business is very new.
- Paperwork is too much.
Alternatives to Loans
If you are unable to obtain a loan, you can:
- Using your own savings.
- Raise money online through crowdfunding.
- Pitch to the angel investors or venture capitalists.
- Joining incubation programs that give grants and guidance.
Conclusion
Getting a loan for a startup in India is possible if you plan well.
- Make a strong business plan.
- Keep your documents ready.
- Check for the government schemes to get collateral-free loans.
