An entrepreneur would plan a start-up when he is willing to take a calculated risk and set up a new business with a motive to earn Profit, the satisfaction of being an independent businessman, successfully being able to manage his expenses or just by making a difference to the society by doing some social work. It is simple to think of a start-up but the challenge is to create a product or service that can satisfy the consumers keeping in mind customer satisfaction and demands, market competition, costing – both selling price and market price and finally the Capital to initiate a start-up.
Why do we need a Start-Up Loan:
An entrepreneur needs funds to focus on the following points to start a new venture:
- A business plan.
- Research Expenses
- Borrowing Costs
- Insurance, License, and Permit Fees
- Technological Expenses
- Equipment and Supplies
- Advertising and Promotion
- Employee Expenses
- Post opening costs like Advertising and Promotion
- Customer service
Process to avail an unsecured Start-up loan:
To avail a loan, one must ensure
- Make a crisp and detailed business plan
- State in the business plan where the loan amount will be utilized
- List the goals and objectives of one’s business along with a pictorial description of the growth and returns from the venture.
- Give a clear approximation of the funds
Types of other categories of loan that can be obtained for a start-up:
Sources of Start-up Loans:
- Government offers:
- Grants or Micro Loans from NPOs and NGOs
- Personal Loans
They are like credit cards, which usually have high rates of interest, especially for borrowers with poor credit rating: They can be of two types:
- Secured Loans for Businesses
Secured loans are loans which are raised against some collateral or personal guarantee. Inventory loans, term loans, equipment loans, and loans against property are types of secured business loans.
- Unsecured Loans for Businesses
In several cases, self-employed and business people prefer unsecured business loan, which is available without collateral for many reasons.
- A quick loan disposal period of 5 -15 days in comparison to secured loans
- No collateral required to avail loan
- Reduces the stress to borrow from other people or save themselves from the hassle of going to banks and financial institutions, instead, it gives the benefit to the lenders for borrowing for urgent or seasonal business expenses
How to apply for an Unsecured Loan for your Start-up:
Applying for start-up business loans is simple, quick, and hassle-free. You can fill an online application or visit the official website of the lender and fill in your details. You can also visit the nearest branch of the lender and submit the required form and documents. Once the verification is done, the loan is credited directly to the bank account.
Criteria to apply for an Unsecured Loan for your Start-up
|Conditions||Start-up Loan Eligibility Criteria|
|Eligible Entities||People like Self-employed, non-professionals – Sole proprietors, partnership firms, private limited companies, public limited companies involved in the business of manufacturing, trading, and services, Self-employed professionals – Doctors, CA, CS, Architects can apply for a start-up.|
|Age Limit||21 – 65 years|
|Loan Amount||Rs. 50,000 to Rs. 100 Cr|
|Interest Rate||13.50% – 22.00%|
|Loan Tenure||Short period business loans that are given for 1-5 years are generally secured loans.|
|Banking Stability||6 months and above|
|CIBIL Score||650 or above|
|Income Tax Returns (ITR||A self-employed can get a business loan, only when it has filed regular ITRs for the past few years. People who have filed ITR for a minimum of 2 years or more are considered eligible by Banks. Banks check your loan payback capacity and monthly income based on the documents and details filled in the ITRs.|
|Revenue / Turnover||Revenue is the income that a business enterprise has earned from the sale of goods and services to customers. It is also termed as sales or turnover.|
Chances of getting a start-up loan are bleak but if we take the following into consideration; we can easily get an approved start-up loan:
- Improve Credit Score
- Avoid multiple loan applications
- Choose your Lender wisely
- Business Existence
- Select the loan amount based on loan repayment capacity.
- Maintain proper accounts and financial information
- Regularly check your CIBIL Score
To get the best deal in start-up unsecured loans, you need to:
- Compare Business Loan Interest Rates – The minimum rate of interest on business loans starts at 13.50%.
- Processing fees – Variation between minimum processing fees of 2% to 3% on loans
- Insurance premium – A life or accidental policy is generally recommended when availing an unsecured loan.
- Prepayment and foreclosure – In case of surplus funds, the borrower may think of making a pre-payment or foreclosing the loan. A few loans could be charge free and many institutions may charge up to 5% as foreclosure charges.
Documents required for start-up Loan
- Signed Application Form
- Identity Proof (PAN)
- Residential Address Proof
- ITR of previous 3 years (business and self), certified balance sheets, profit, and loss account,
- Last one year statement of account (self and business)
- Certificate and Proof of Business Existence
- Business Profile
- Office address – lease/ownership / utility bill/ rent agreement/
|Certificate and Proof of Business Existence||PAN, sales tax/ excise/ VAT/ service tax registration, Copy of partnership deed, Trade license, certificate of practice, registration certificate issued by RBI, SEBI||PAN, sales tax/ excise/ VAT/ service tax registration, Copy of partnership deed, Trade license, certificate of practice, registration certificate issued by RBI, SEBI|
|Address Proof||Driving License, Passport, Election ID card, telephone/Electricity/ mobile bill/ bank statement (not more than 3 months old)||Bank statement, utility bill, Registry copy, lease or rent agreement, TAN allotment letter|
|Identity Proof||PAN card, Driving License, Passport, Aadhar Card, Govt issued i-card, Voter id,||PAN card, Driving License, Passport, Aadhar Card, Govt issued i-card, Voter id,|
Launching a start-up can be enticing and enervating at the same time. However, getting caught up in the excitement and neglecting the details can lead to failure. Always follow and consult an expert to get some relevant business advice that helps your innovation in start-ups succeed.