Business Start-up Loan - Eligibility, Interest Rates, and EMI Calculator
One of the biggest concerns for any entrepreneur with respect to a new business venture is getting the necessary funds. The wave of entrepreneurship that is apparent today has led to several financing options in terms of business start-up loans that are extended by most banks or financial institutions. Some of these loans are provided in collaboration with the Government of India to give you a great funding option with easy and reasonable repayment terms.
A business start-up loan is provided for any company that is currently non-existent. These loans are extended to finance construction and renovation, purchase of any equipment needed, and also purchase any goods required for the business. These loans are provided based on the business plan submitted by the individual at the time of applying for the loan.
Types of Business Start-up Loan
There are different types of Business Loans that are provided to entrepreneurs. These loans differ in the purpose of the loan, the repayment tenure, and the quantum of loan that is provided.
The different types of business start-up loans are as follows:
A term loan is provided for a longer period of time that is fixed as per the repayment capacity of the individual. These loans help you avail a larger loan amount with flexible repayment terms. Term loans are extended on the basis of the business plan that is submitted while applying for a loan. It is necessary to provide complete details of the expenses associated with the business. Usually, the term loans cover a portion of the expenses associated with the business and require the borrower to provide a margin. This depends upon the type of loan that you apply for and the scheme that you are availing finance under.
Line of Credit
A line of credit working capital is provided to improve the cash flow for business operations. Also known as a line of credit, this loan functions like a credit card. You are sanctioned a certain credit that is associated with the current account of the business. You can utilize as much of this line of credit as you need for your business operations. The interest that is charged is restricted to the amount that you utilise. Once you have repaid the amount that you have used, the entire line of credit is available again for you to use.
This is a type of loan that is provided exclusively for the purchase of equipment required for the business. In case of these loans, the hypothecation of the equipment is considered the primary security for the loan. You may also be asked to provide additional collateral depending upon the quantum of the loan and the value of the assets purchased using the loan.
Government Aided Loans
One of the primary goals of the Government of India currently is to encourage entrepreneurship and hence open more opportunities for employment. For this reason, several government schemes have been launched to provide easy financing options for start-ups.
Some such schemes are:
- PMMY: Mudra loans are available in all banks across India. This scheme was created in the year 2015 and is managed by the Micro Units Development and Refinance Agency. Available in three different categories, namely Shishu, Kishore, and Tarun, these loans provide financing from 50,000 to 10 Lakhs. These loans are available for start-ups in all sectors including trade, retail, manufacturing, and services.
- Bank Credit Facilitation Scheme: This is a scheme provided by the National Small Industries Corporation (NSIC). It helps meet all the credit needs of the micro, medium, and small enterprises and is available with every bank in India. The advantage of this scheme is that the repayment tenure is extremely flexible and can be extended up to 11 years.
- Standup India: This is another government aided scheme that was launched in the year 2016 in order to provide financing to trade, service, and manufacturing sectors. The quantum of loan is higher with this scheme, providing loans starting at 10 Lakhs and going all the way up to 1 Crore. You have repayment tenure of up to 7 years with this loan plan. This scheme is headed by the SIDBI and is available with all banks across the country.
- Sustainable Finance Scheme: This is another loan plan that is monitored by SIDBI. The idea behind this loan is to encourage businesses and enterprises to make use of renewable energy, green energy and even non-renewable energy. The intention of this scheme is to encourage the use of cleaner and more environment friendly production and manufacturing techniques. It supports all development projects that are more sustainable.
- Credit Guarantee Scheme: This is a credit guarantee fund that is exclusively meant for the MSME sector. This can be availed by both new and existing MSME units in the manufacturing sector. It is a credit guarantee scheme that acts as an insurance for any of the government aided loans availed by an enterprise. It helps you get a large loan amount without having to pledge any assets or provide any collateral. This option is also extended to Self Help Groups that qualify under the eligibility criteria. Cover can be obtained for loans up to 2 Crores.
Eligibility Criteria for Business Start-Up Loan
The eligibility criteria for any business start-up loan vary with the bank at which you have applied for a loan. The idea behind setting these eligibility criteria is to ensure that the individual is qualified to run the business and is credible to make regular repayments towards the loan availed.
With a business start-up loan, the general eligibility criteria are as follows:
- The business plan provided by the individual should be viable as per the current market conditions
- They should be at least 21 years of age and should not be more than 65 years of age when applying for the loan.
- The individual should be a resident of India
These eligibility factors help determine the rate of interest that you will be charged for the loan. If you are an individual who is highly eligible, then banks are also willing to negotiate the terms of the loan to make the repayment more convenient for you.
There are some factors that affect the eligibility criteria for Start-up Business Loans:
- Credit score: The primary applicant of the loan should have a good credit score. Normally, the credit score ranges between 300 and 900. The higher the credit score of the individual is, the better the eligibility for any loan will be. This shows that the individual has been regular in making repayments towards all previous credits and is has displayed a good credit behaviour overall in the past.
- Business plan: This is the most important factor in deciding whether the loan can be provided for the start-up or not. You will have to provide projections for the tenure of the loan based on the trends in the industry that you wish to work in. This allows the bank to understand the actual demand for the business, the possible rate of growth in the following years and most importantly, the repayment capacity of the business.
- Collateral: Most banks require start-up businesses to provide collateral of some form. Although the credit guarantee scheme is available, the other types of start-up loans that you can avail do not provide any such cover. You will have to provide collateral in the form of property, fixed deposits and other assets that are deemed suitable by the bank. The better the collateral provided, the higher the quantum of the loan and the lower the interest rate.
The interest rates are lower when you meet the eligibility standards because the risk involved in extending a loan to you is lower. It is a good idea to check your eligibility before applying for a loan to prevent any rejection. Loan rejections affect your personal credit score. You have the option of talking to the customer care of the bank that you choose or visiting any branch of the bank. Additionally, you have several online Eligibility Calculators that help you understand what loans are best suited for you at the moment.
Documents Required for Business Start-up Loan
In order to verify the eligibility conditions, banks require you to provide supporting documents. The documentation process is extremely important with any loan and can affect your chances of getting an approval or rejection on the loan. Although the documentation process is quite simple and straightforward, make sure that you get a checklist from the bank before you apply for a loan.
The common documents that you will have to submit with a business start-up loan are as follows:
- A duly filled application form
- 2 passport sized photographs
- ID Proof: Aadhaar Card, Passport, PAN Card, Voter's ID and Driving License
- Address Proof: Driving License, Adhaar, Leave and License Agreement, Business Registration
- Age Proof: PAN Card, Passport
- Bank Statements: For the last 6 months.
- Signature Proof: PAN Card, Passport, or Bank verified signature
- IFSC Code Proof: Cancelled cheque, copy of the front page of the passbook
- Business Plan: A detailed business plan with projections for the loan tenure that are attested by a CA.
The business plan format varies from one bank to another. Make sure you have understood the various requirements of the bank before you get your business plan prepared. Projections must be made as per the trends of your area of work.
How to Calculate EMI for Business Start-up Loan?
When it comes to a Business Loan or any other type of loan, the first thing that you need to check is if the loan is affordable for you. This can only be done when you know the exact repayment to be made towards the loan each month. Calculating the EMI is a great way to check if a certain loan plan is suitable for you or not.
Here are some options available to you:
- Using the Formula: There is a formula that all banks use to calculate the EMI that is payable towards the loan. The formula used is [P x R x (1+R)^N]/[(1+R)^N-1]. Here P is the principal amount of the quantum of loan availed. R is the rate of interest and N is the tenure of the loan. This formula allows you to manually calculate the EMI payable towards the loan.
- Using MyMoneyMantra EMI Calculator: When you are making manual calculations, there is always room for human error. Even the slightest difference can affect your budget tremendously. So, it is best to make use of MyMoneyMantra's online EMI Calculator. These tools are free and easy to use. All you have to do is enter the loan amount, the interest rate, and the term of the loan. The EMI calculator uses the formula mentioned above to calculate your EMI for you instantly.
Once you have calculated the EMI, make sure that you check your budget and the possible income from your business. After you have deducted all the necessary expenses such as rent and salary payable, you should have enough funds to make repayments towards the loan. If the EMI is too high, you can try to negotiate the repayment tenure to bring down the monthly burden. This, however, means that you will have to make larger payments towards the interest.
You can also look at alternate loan plan that charges a lower rate of interest and has more flexible terms. If you feel like the EMI is no affordable, it is best not to apply for the loan. Failure to make regular repayments will have an effect on your credit score. This will reduce your chances of getting any finances in the future.
How to Apply for a Business Start-up Loan?
The application process for a business start-up loan is quite simple. Here are some options that you have for submitting applications for a Business Loan:
- Log on to the website of the bank that you choose to apply for a loan with
- Under the products and services menu, choose Business Loans
- Choose the loan that you wish to apply for
- Fill up an application for online
- Submit the application form
- If your application is approved, you will be contacted by a representative of the bank
- Provide the loan documents necessary
- Once the loan is sanctioned, the amount will be disbursed as per the terms of the loan
- Visit the nearest branch of the bank that you wish you apply for the loan with
- Fill up the application form for the loan that you have chosen
- Attach all the documents as per the requirement of the bank
- Submit your application form
- Once the application is submitted, it will be assessed and the loan will be approved or rejected as per the eligibility criteria.
- If approved, the loan will be disbursed as per the terms of the loan
How to Apply for a Business Loan through MyMoneyMantra?
MyMoneyMantra provides one of the easiest financing platforms that connect customers to various banks, NBFCs, and financial institutions. You can go through the loan plans offered by different institutions and apply for the one that suits you the best using the following steps:
- Log on to mymoneymantra.com
- Go to Business Loan and choose the loan plan that you want to apply for
- Fill up an online application form with details like your name, gender, loan amount required, city of residence, etc.
- Once the application form is successfully submitted, you will be contacted by representatives of MyMoneyMantra.
- The documents will be verified and collected at your doorstep
- The application form along with the documents will be submitted to the lender chosen
- MyMoneyMantra also helps you with follow ups for the loan
- Once the loan is approved, the amount will be disbursed as per the conditions mentioned in the loan agreement.
Why Apply for a Business Start-up Loan through MyMoneyMantra?
MyMoneyMantra is one of the simplest options for customers to avail any financial assistance.
There are several advantages of choosing MyMoneyMantra as your loan application platform:
- The application process is simplified: All you have to do is fill up an online application form and submit it on the MyMoneyMantra website. Following this, you will get end to end services from collection of documents, submission of the application to follow up on the loan until the disbursement.
- Faster loan turnaround time: MyMoneyMantra strives to ensure that customers get the loan when they are in need of it. For this, they have an exclusive system that functions 24/7 to help you follow up on your loan application.
- Best financial advice: The idea behind MyMoneyMantra is to help you get the best financial assistance that is suited to your requirements. No matter what queries you have with respect to the loans, you can connect with the relationship managers of MyMoneyMantra. There are over 2500 relationship managers all over India to help you get easy access. You also have the advantage of an in-house panel of financial advisors who will help you understand different finance options before you apply for one.
- Customised loan plans: When you apply for a loan with MyMoneyMantra, you have to fill an online form with personal details including your name, gender, age, etc. Based on the information that you have provided, MyMoneyMantra will choose the best loan plans for you to ensure right financial assistance as well as easy repayment options.
- Easy access: MyMoneyMantra is an online platform which makes it easy to access. In addition to this, we have a presence in over 500 cities across India which helps you get immediate assistance on any financing that you need.
- Award winning products and services: MyMoneyMantra is known for creating some of the best services and products for customers. For this, they have been honored with more than 100 awards from the banking industry.
- Access to multiple financing options: MyMoneyMantra provides access to over 90 banks and NBFCs under one platform. This makes it easier for customers to compare various loan plans, understand the eligibility criteria, and then apply for the loan. This helps improve the chances of approval and also provides the best repayment options as well.
- Availability of financial tools: There are several financial tools like EMI Calculators and eligibility calculators that are available on MyMoneyManrtra for no added fees. This helps customers find the best loan and credit options for them. You are also able to plan your budget and repayment much better.
Features and Benefits of Business Start-up Loan
One of the best ways to fund a new business is through a suitable loan plan.
Here are some features and benefits of choosing a business start-up loan:
- You can get loans without collaterals: With various new loan schemes available to you, you even have collateral-free loans. This makes it easier for start-ups to get the loan that they need without having to worry about arranging for any security. You have great options like credit guarantee schemes that lift the burden of security and guarantees.
- The repayment conditions are flexible: Business Loans offer the lowest interest rates and make it easier for you to repay them on time. You also have the option of a holiday period and flexible repayment tenure on your loan.
- Quick disbursement of loans: Once all the documents are submitted, the loan is assessed and approved. Following this, the loan is disbursed to your account or to vendors as per the terms of the loan agreement. Loan turnaround time with Business Loans is quick to prevent any delays in starting your business.
- Documentation process is straightforward: The documents required for any start-up Business Loan are very easy and straightforward. You can also get a detailed list from your bank to make it easier to submit the application and improve your chances of getting an approval.
FAQs - Business Start-up Loan
What are the funding options available for start-ups?
If you are applying for a loan for a new business, you have the option of getting a working capital or a term loan. Term loans help you get a larger loan amount with fixed repayment tenure. A working capital, on the other hand, is a short term financing option which helps you meet immediate cash requirements of the business.
What is the amount of finance available to start-ups?
The maximum loan amount that you can avail for a start-up depends upon the type of loan that you choose. Banks also assess the expenses and the credibility of the borrower in order to fix the maximum loan amount that can be sanctioned.
What qualifies a business as a start-up?
Any business that is under 5 years old qualifies as a start-up. You also need to have a turnover that is under 25 Crores in order to qualify for a loan under various Business Loan start-up schemes.
Which is the best bank to avail Stand Up India Loans?
Stand Up India scheme is extended by banks all over the country. Therefore, you can apply for these loans in any bank across India. The margin on the loan and the fees charged by the bank may differ as per the internal policies of the bank.
What is a credit guarantee scheme?
A credit guarantee scheme is extended by the government in order to help new businesses avail loans without providing any security or guarantee on the same. These schemes act as insurance covers for the loan which will help the bank in the recovery process in case of any default. The applicant is required to pay an annual fee in order to avail this guarantee scheme throughout the tenure of the loan.
How can repayments be made on these start-up loans?
With any Business Loan, repayments are made on a monthly basis in the form of Equated Monthly Installments. This is debited from the account that the borrower chooses through ECS on the date that is mentioned in the loan agreement.
Is it better to get longer repayment tenure on a start-up loan?
Longer repayment tenure is chosen by most individuals as the monthly EMI burden reduces considerably. However, it is important to note that you will be making a larger payment towards the interest levied on the loan. Once the business begins to make more profits, it is a good idea to reduce the repayment tenure to save on the interest.
Why is a business plan necessary for a start-up loan?
The business plan provided by the borrower allows the bank to assess the viability of the business and its scope as well. This helps the bank understand the repayment capacity of the business to ensure that there are no defaults. The business plan must be made as per the format provided by the bank in order to ensure higher chances of approval on the loan that you apply for.