Business Loan Guide for Entrepreneurs

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Think of this: you have an amazing business idea and you end up with a handful of people who believe in your idea. You all pool in finances from your savings and work at building your business. Now, your business is beginning to get traction and you need to expand your startup. However, for your startup to make a profit and capture significant market attention, you need a steady inflow of finances. Several MSMEs (Micro, Small and Medium Enterprises) would be flourishing, if not for an inadequate amount of funds.  This is where a business loan would come in handy.

A business loan is a loan intended to finance and meet business needs. This means that it can be used to start a new business, expand your business, buy state of the art machinery or infrastructure or just boost production. To sustain your business and to keep up with making profits, you might need to apply for a business loan.

Let us look at some more details about entrepreneur loans that can help you build your business.

Eligibility criteria

The eligibility criteria may vary from lender to lender. Here are a few common requirements that may clear you to apply for a business loan:

  • You must be an Indian citizen
  • Your age must be between 26-66 years
  • You must have a business vintage of the past 3 years
  • You must provide a statement of your bank account for the past 1 year
  • You must be self-employed
  • Aadhar Card
  • PAN Card

Types of entrepreneur loans

Startup loans for new businesses can be procured from various sources. Businesses can avail bank or NBFC (Non-Banking Financial Institution) loans, government business loan schemes, or even individual investors.

There are basically two main types of business loans provided by financial institutions. They are:

  • Secured loan: Secured loans are for higher capital and may require some form of collateral from the applicant. The application process is long and requires extensive documentation.
  • Unsecured loan: No collateral is required here. The loan approval is quick and requires minimum documentation.

Getting finance from Investors

You can opt for loans from independent investors in case you do not wish to apply for loans from banks or government schemes. This can be done by:

  1. Debt funding: In this case, you have to approach the investor with your business plan and convince them to lend you the business loan. To avail of this loan, you will have to sell business bonds and repay the loan money with interest in scheduled timelines.
  2. Crowdfunding: Crowdfunding is rapidly gaining traction in India. You can head to crowdfunding platforms, where you can get a small amount of capital from various investors. However, crowdfunding is not ideal for those seeking a large amount of financing.
  3. Bridge funding: Also known as caveat loan or swing loan, this loan is taken typically in the period when you are waiting for a long term loan to be financed.

Schemes by Government of India

Government loans can be divided into Small Business loans and Startup business loans. These are categorized based on the nature of expenses and the requirement of funds. Therefore, before applying for a business loan, you must be clear about your business needs and your loan requirements. The following are some popular schemes for business loans issued by the Indian Government.

  1. The Credit Guarantee Scheme: This scheme offers entrepreneur loans of up to ₹10 lakhs without any collateral. If you put up collateral like land or any other asset, you will be eligible for a business loan of up to ₹1 crore.
  2. Mudra Loan: In this scheme, startups and SME owners can get a business loan up to ₹10 lac along with a microcredit loan of ₹1 lac. These loans are given by RRBs, commercial banks, NBFCs, and MFIs. You can approach any of these institutions or apply for a Mudra loan online. Under the ambit of PMMY, the Indian government has designed 3 different loan products, namely, Shishu, Kishor, and Tarun, in order to fulfill the funding needs of the applicant’s business.
  3. The NSIC subsidy: The National Small Industries Corporation offers a subsidy in order to provide assistance to SMEs and business loan for startups. This scheme may be helpful at the budding stage of your business as it is ideally suitable for buying raw / manufacturing materials.
  4. Credit Link Capital Subsidy Scheme: The main objective of this scheme is to upgrade the technology used in your business. With a capital amount of ₹15 lac, you even get a subsidy of 15% if you are eligible.
  5. Stand Up India Scheme: Specially designed for women from SC and ST categories, one can get a loan from ₹10 lac to ₹1 crore with a repayment tenure of 7 years.

Conclusion

Now, before any of you entrepreneurs apply for a startup loan for a new business, it is necessary that you have clear plans about your business, a good credit score, and a valid reason for applying for an entrepreneur loan.

If you wish to expand your business to the next level, a business loan is a blessing in disguise for you. With the Bajaj Finserv Business Loans available on Finserv MARKETS, you can avail loans of up to ₹30 lac, without having to offer any collateral! With an application process that gets you an approval in 3 minutes and money in your account in 24 hours, SME & MSME business owners can easily avail of a business loan to take their businesses to new heights.

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