How to Apply for a Business Loan ?
If you need money to launch a business or grow an existing one, consider applying for a business loan from a bank or other financial institution. Depending on the loan amount you request and the duration of time you have until you have to pay it back, the bank will set the interest rate.
Presently, India is home to over 39,000 startup enterprises, all of which can choose from a variety of private equity and debt investment opportunities.
However, it might be challenging to secure financial backing for a startup enterprise. Because of the difficulties that Micro, Small, and Medium Enterprises (MSMEs) have gained access to traditional financing, the Indian government has created lending programs specifically for startups and MSMEs.
There has been an increase in direct lending from the Small Industries Development Bank of India (SIDBI) to startups and MSMEs in India. There is an almost 300-basis-point difference between the interest rates offered by banks and those offered by these alternative lenders.
Lenders typically provide one of two kinds of business loans: term loans or working capital loans.
There are many potential applications for a term loan, including business growth, equipment acquisition, and the beginning of brand-new ventures.
The terms of these loans can be anywhere from one year to ten years. In contrast, working capital loans are short-term loans with a one-year repayment period that can be used for things like rent, employee salaries, inventory purchases, etc.
MSMEs are India’s lifeblood. They’re the second-largest employer after agriculture and contribute 24.6% of the service sector’s GDP.
Their impact on our economy is substantial. Loans help them upgrade, exploit chances, and thrive in today’s competitive company environment.
The Micro, Small, and Medium Enterprises Development Act 2006 defines MSMEs as micro, small, and medium industries that manufacture or process goods. Investment and sales determine classification.
Micro-enterprises have less than Rs. 1 crore in investment and up to Rs. 5 crores in revenue. A small firm invests less than 10 crores and has a maximum turnover of 50 crores. A medium enterprise invests less than 50 crores and has a maximum turnover of 250 crores.
A company registered under the Udyaan MSME scheme might get an MSME loan to improve operations or meet working capital needs.
Advantages of an MSME Loan:
● Loan providers recognize your need for urgent funding and guarantee swift, hassle-free processing and disbursement of funds for loans under Rs. 50 lakhs.
● Most loan lenders provide online applications to reduce paperwork. Log into your service provider’s website, complete the relevant details, submit the required papers, and utilize the advantage of tailored borrowing programs.
● You can choose a payback term between 12 and 60 months, and a foreclosure is free.
● MSMEs can acquire loans with interest rates between 17 and 21%, and entrepreneurs can get loans starting at 11.99%. Interest is dependent on income, location, loans, etc.
● You can use a business loan eligibility calculator to examine your needs and manage your finances.
● There are additional government programs to help Indian indigenous industries and MSMEs. Through banks and NBFCs, the government distributes these loans.
Pradhan Mantri Mudra Yojana provides collateral-free MSME loans up to 10 lakhs. Some programs provide eligible candidates a few-month moratorium.
SME/MSME Loan Eligibility:
Individuals and corporations can qualify for an MSME loan if they meet certain criteria. Basic loan requirements are:
● Applicants must be 22 years old and no older than 65 at loan maturity.
● Private traders, manufacturers, and service providers can apply for an SME loan.
● The applicant must have 3+ years of experience in the business.
● The firm must have a base income of at least Rs. 2 lakhs, a turnover of Rs. 10 lakhs, and two years of profits.
● The business must be registered as an MSME on Udyaan and present its certificate.
How to get an MSME loan:
● Fill out the loan application on your lender’s website. A loan provider representative will contact you soon to discuss your permutations and combinations and the best possibilities for you.
● Submit documents for verification after determining eligibility. Scan and submit documents online.
● You might request that the loan provider collect hard copies of the documents. Once all appropriate documents are collected, they’re sent for verification.
● The loan provider develops the loan agreement after document verification and loan approval. Post signing of the financial agreement, the money is credited almost instantaneously.
Loans provided by the government
● Bank Credit Facilitation Scheme
This NSIC-led program meets MSME finance needs. NSIC partners with banks to provide MSME loans. In rare instances, the payback time period can be potentially extended to 11 years.
● Pradhan Mantri Mudra Yojana (PMMY)
The Micro Units Development and Refinance Agency (MUDRA) launched this scheme in 2015 to provide loans for manufacturing, trading, and service sector activities. The scheme gives loans between Rs.50,000 and Rs.10 lakh under the Shishu, Kishor, and Tarun categories. Artists, shopkeepers, vegetable vendors, machine operators, repair companies, etc. can acquire a Mudra loan.
● Credit Guarantee Scheme (CGS)
This credit is available to new and current MSMEs engaged in service or manufacturing, but not educational institutions, agricultural, retail commerce, SHGs, etc. The Credit Guarantee Fund Trust for Micro and Small Enterprises heads this scheme (CGTMSE).
● Standup India
SIDBI’s April 2016 program lends to manufacturing, trading, and service businesses. This scheme offers loans of up to Rs.1 crore. The maximum moratorium time authorized under this program is 18 months.
● Sustainable Finance Scheme
This SIDBI-led scheme offers loans to green energy, renewable energy, technology hardware, and non-renewable energy industries. The government created this plan intending to offer support to the full value chain of cleaner production/energy efficiency and sustainable development initiatives.
This internet platform allows business owners to obtain financing. You can borrow
up to Rs.10 lakh under the Mudra Loan plan and Rs.5 crore under the MSME loan scheme. Personal loans up to Rs.20 lakh, home loans up to Rs.10 crore, and auto loans up to Rs.1 crore are also available.
Startup loans by banks
● HDFC bank
Up to Rs.40 lakh. 50k in select locations.
The bank charges a 0.99% processing fee.
Four-year repayment terms.
● TATA Capital
Three-year repayment terms
50,000-75 lakh rupee loans.
The lender charges a 2.50% processing fee plus GST.
● Kotak Mahindra Bank
Up to Rs.75 lakh.
Bank interest rates depend on the loan amount, repayment term, etc.
Processing fees are 2% of the loan plus GST.
Five-year repayment terms.
● Fullerton India
Loans of up to Rs.50 lakh.
Repayment tenures of up to 5 years.
The processing fee charged can go up to 6.5% of the loan amount plus GST.
Startup business loans are of two types:
** 1. Line of Credit:**
A startup business loan in the form of a line of credit works similarly to a credit card. However, the card is tied to the individual’s business instead of their individual credit. The benefits of a small business line of credit is that users will have no obligation to pay interest on the borrowed sum for the first nine to 15 months, thereby making it easier to cover expenses whilst getting their business to a good start.
** 2. Equipment Financing:**
In this type of loan for start-ups, the equipment that is bought when starting the business is pledged as collateral, thus enabling the lender to charge a relatively low rate of interest with a slightly higher risk.
The customer is expected to repay the amount used to purchase the equipment as revenues are generated from their business.
Similar to a line of credit, applicants are expected to have a high credit score (680+), and the documents required to avail of equipment financing include a vendor quote, a detailed credit report, and a statement showing how the customer intends to utilize the equipment.
The main benefit of equipment financing is that the depreciation of the equipment can be used by the customer as a tax benefit for many years.