APN News

  • Friday, March, 2020| Today's Market | Current Time: 08:49:01
  • Overview:

    India has the third-largest startup base in the world behind the USA and the UK as per NASSCOM studies in 2016. It signifies that the country is rife with business ideas and the driving force in the SME sector. A new entrepreneur is often faced with hurdles for raising funds which every business need. Recognising the importance of startup business, the Government has also initiated schemes to nurture such small enterprises through their flagship MUDRA. On the other hand, banks and NBFCs, including the Fintech companies, have come forward with tailored products for small startup business loan products with attractive features to woo the startup entrepreneurs.

    How to get ready for a small startup business loan?

    Getting a small business loan for startup is easier said than done. There are multiple sources for seeking finance for your project, but the prerequisite is the meticulous groundwork for approaching the right lender for the right loan. Some of the stages for your readiness can be enumerated thus:

    1. Determine Startup Cost: The first step is to prepare a viable business plan inclusive of working out the financials. You need to have clarity on the type and quantum of funds to set your enterprise rolling.
    2. Put Documents in Place: One of the most important aspects for a successful application for a business loan. Ensure that you have a proper business plan, right credit score, registration and licenses in place.
    3. Check out for a Suitable Loan: There are different types of small business loans in the market. Your business plan will act as guidance for you to choose the right loan product for you.
    4. Lodge Application: Once you are ready, the next logical step is to apply as per provisions of the lender.

    Startup Business Loan Sources:

    You are already familiar that there are multiple ways of looking for funds to nurse your business. It goes without saying that funds are the lifeline of any business enterprise. Looking for funds for the business is not only critical for the health of the business, but it is also essential for it to grow and achieve its potential.  Let us list them out.

    • Banks have abundant schemes for small business loans.
    • NBFCs and Fintech are the other popular sources offering startup business loan without collateral.
    • Explore possibilities of crowdfunding.
    • Approach Venture capital or Angel Investors.

    Given the circumstances in India, the most popular small business loans are sought from banks and NBFC or of late from Fintech. Even the Government initiatives like Mudra are catered to by the banks.

    Benefits of Startup Business Loan:

    No enterprise can do without a business loan in their operating cycle. How prudently you use it is reflected in the outcome. However, there are several reasons for its popularity as a great option for startups.

    • Easy Availability: Different lenders have different norms. While banks look for some collateral or guarantee for granting a small startup business loan, Fintechs, on the other hand, are liberal and provide startup business loan without collateral. Of course, the range of products is multiple in both.
    • Customised Loans: Loans are tailored to suit your needs, which can be Term loans, Line of credit, working capital, Invoice discounting, Merchant advance and many such, to fulfil every requirement of the business.
    • Affordable: The rates of interest and other fees are competitive, and the biggest advantage is that there are no hidden costs. Adding to the borrower comfort is the speed of loan processing, liberal documentation and handsome loan quantum.
    • Flexible Repayment Options: Usually the repayment option is in the form of easy EMI, But some lenders also offer Fortnightly facility and pre-closure without any additional fee.

    Eligibility of Startup Business Loan:

    The norms will vary from lender to lender. It is best to find a median and get prepared to comply after confirmation from the lender. It is also important to remember that banks and Government rules are more stringent, making Fintech attractive for startup business loans.

    • Business with ownership of Proprietor, Partner, Private Limited and Limited Liability Company.
    • The enterprise must be operational for specified periods starting from 6 months.
    • Quarterly turnover over Rs.90K.
    • The business activity and the location must not be included in the negative list.

    Documents required for Startup Business Loan:

    It is one of the crucial aspects of seeking a loan. Traditional lenders have an elaborate document regime as compared to the Fintech who make do with bare essential documents. Let us check out the minimum which is only indicative and may require additional documents from the lender during application processing.

    • Valid documents for KYC compliance both of the Promoter and the Business including the PAN card.
    • Aadhaar card of the Promoter.
    • Proof of Business Existence, including registration and requisite licenses.
    • Partnership deed if applicable.
    • Memorandum of Association and Articles of Association as applicable.
    • Financial statements specified by the lender inclusive of a bank statement.

    How to apply for a Startup Business Loan:

    You are already familiar with the fact that banks have stringent rules for business loans. On the other hand, Fintech is a good option as the process is fully digitalised. The steps are simpler and well defined in a minimalist pattern.

    Let us check it out:

    1. Apply online at the official portal of the lender or through an aggregator.
    2. Attach all the requisite documents sought, in the digital format.
    3. Await sanction after evaluation of the application and documents.
    4. Disbursal and credit of the account.

    Fees and Charges for Startup Business Loan:

    For any borrower, the cost of loaned capital is the outcome of the rate of interest and other applicable fees. Let us check them out at a Fintech:

    Rate of Interest Up to 27% per annum
    Quantum of Loan Rs.50K to as much as Rs.2C
    Tenure Maximum of 36 months
    Processing Fee 1% to 2% of the loan amount applied at the time of disbursal
    Foreclosure Fee Nil
    Security No collateral is required.


    Bottom Line:

    The success of the loan application is higher at the Fintech for their easy terms and great customisation. A startup business being generally nascent when the business loan is sought, a Fintech is the best bet in India. They also promise fast processing in a matter of hours, unlike the banks that may take days.