The complete guide to getting a start-up business loan

For any business, whether in the manufacturing or service sectors, the requirement of money, arrangement for them either from their sources as capital or from lenders as loans, and ultimately management of them are the key nerves. While so if you are a start-up business, it becomes vital for the smooth running and scaling up of the company, and an MSME business loan accomplishes it.



What is a start-up?


It is a newly started business, formed by the sole entrepreneur or more than one entrepreneur, to develop some product or service they believe to be reasonably marketable and grow faster and more extensively. The majority of them meet failures, but a minority of them become successful.


The initiative for start-ups witnessed its dawn in the year 2015. Right from then, many new-age companies in the corporate sectors and MSME (Micro, Small and Medium enterprises) segments have ventured upon, leading to job opportunities and consequently to our country’s economic growth.


The company must be new or less than five years old. The company’s annual revenue should also be at most Rs.25 crores.


Lending Institutions:


The campaigns promoted by the Central Government, Public sector and Private Sector banks, and NBFCs (Non-Banking Financial Companies) have helped the start-ups to avail easy and affordable start-up business loans and flourish. Small Industrial Development Bank of India (SIDBI) has granted direct financing to start-ups and MSMEs. Industrial Investment Corporations in the various States of India also offer financial assistance to them.


Factors for consideration:


As detailed here below, various factors, varying from institution to institution, must be considered meticulously to tap the required finance from the host of lending institutions such as MSME business loans. You should fulfill them to win over your requirements.


Project Report:


First, plan your project report in a way that looks good and is acceptable. A detailed description of your project, product/service, promoters, equipment, location/s, raw materials, disposal of finished goods, infrastructure, statutory requirements such as pollution clearances, profitability, clearly stated financial needs like a term loan, working capital/cash credit, letter of credit, and repayment plan would be helpful.




Here, make sure to adhere to the norms and requirements of the lending institutions regarding specific ratios like the Current Ratio, Debt Equity Ratio, Break-Even Point (BEP), Debt Service Coverage Ratio (DSCR), etc. If necessary, seeking the assistance of a professional in this regard will be an excellent proposition.


Choose a suitable lender:


As indicated earlier, many institutions are ready to lend as startup business loans to capable and credit-worthy entrepreneurs. Collect details of such institutions in the light of their terms like interest rates, penalties, processing charges, services, limits of lending amounts, collaterals, guarantees, documentation, etc. Select the right bank/ NBFC and choose the appropriate loan product.

start-up business loan
start-up business loan


Eligibility Criteria:


  • It would help if you were an Indian citizen, and there should not be any criminal record. It would help if you were not a wilful defaulter for any earlier loan.


  • Your age should be minimum of 18 years and at most 65 years.
  • You should have a satisfactory credit history established by CIBIL/ Experian, i.e., bank-fixed credit scores. If it is 700 or more, you have great chances to get startup business loans. Any lesser score may attract additional interest.


MSME business loan is a blessing to budding entrepreneurs, as it has many inbuilt benefits like three years of tax exemption, accelerated depreciation, various subsidies and various funding schemes in tune with the policies of the Government.


An indicative list of some commonly required documents:


  • Fill out the prescribed loan application form

  • Two Passport-size photograph/s of the sole applicant or all applicants

  • Well-defined project report


  • KYC documents for Identity, Address, and Age Proof like AADHAAR Card/ PAN Card/ Electoral Photo Identity Card (EPIC), Passport, etc.


  • Bank statements for three to six months


  • Income tax returns (ITRs) for the past two/ three years and salary slips


  • A bank-verified signature, Passport/ Pan Card for signature proof


  • GST RC (Registration Certificate for Goods and Services Tax)


  • A bank-verified signature, PAN Card, Passport


  • Canceled/ scanned cheques and xerox of the passbook (front page) 


  • All the copies of the documents need to be self-certified by the applicant/s.


Application process:


Prospective borrowers may reach the financial institutions through personal visits, online, and WhatsApp. You may also call the telephone/ mobile number of customer service for assistance. 


The application and approval processes are mostly digital with most lenders, thus ensuring quick sanctions and disbursements. Before sanctions, the lending institution has the right to visit your factory and workplace, verify your CIBIL Report, and get a confidential opinion from your present banker/s.


Types of Loans:


Unsecured Business Loans


Following notifications from the government, the Reserve Bank of India (RBI), and the National Bank for Agricultural and Rural Development (NABARD), many lending institutions offer startup business loans without collateral or a guarantor up to a specific limit, say Rs.10 lakhs. However, they may insist on getting a guarantee cover through the Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).


A startup may also prefer to or insist on offering immovable collateral securities or guarantors, depending upon the quantum of the loan, the borrower’s credit track record, and the lender’s policy.


Line of Credit:


  • It is similar to a credit card; the only variation is that it is linked to your business, not your personal credit.

  • Equipment Financing

  • The margin on Loans:

  • Usually, you should contribute as a promoter’s stake an amount equal to 15% to 25%. However, for many government-sponsored schemes, the margin will be 5% or 10%.

Details of Business Loan Interest Rate in 2023


Facilities provided by Central Government for Start-ups and MSMEs:


Pradhan Mantri Mudra Yojana (PMMY) 


The Micro Units Development and Refinance Agency (MUDRA) run this scheme, which lends between Rs.50 000 and Rs.10, 000,000.


The Scheme for Bank Credit Facilitation is managed by National Small Industries Corporation (NSIC), which has associated with many institutions to provide financial assistance to small businesses.


Credit Guarantee Scheme (CGS) enables borrowers to get collateral-free credit up to Rs.2 crores. Standup India started in April 2016, comes under the control of SIDBI and provides funding to manufacturing, trading, and service enterprises. 


Sustainable Finance Scheme 


SIDBI also oversees this program, which aims to finance businesses in green/ renewable energy, non-renewable energy, and specialized hardware.


Coir Udyami Yojana: 


This scheme is exclusively for entrepreneurs in the coconut coir industry.




Various subsidies like Credit Link Capital Subsidy Scheme (CLSS), Back ended Interest Subsidy (BEIS) Subsidy from NSIC are available. 


Moratorium or Holiday Periods:


Periods varying between six and eighteen months are allowed by the lending institution on this account; during this period, you need not repay the principal but should promptly service the interest then and there.






You will certainly appreciate the various aspects of startup business loans and find this helpful in framing your project, making a domain-knowledge-rich approach to the lending institution, and putting through the project successfully and profitably.



Leave a Comment