startup business loans

Raising funds is one of the toughest challenges a startup founder faces while starting a new business. With superfluity of lenders and funding options available online, it is crucial for the startup founder to understand the opportunities and obstacles related with each of the funding methodology available.

The pre-requisites of approaching a fund surplus is estimating the amount of fund required, determining how the funds will be used, project the financial position and prepare a return model for the investments done.

Venture Capitalists and Angel Investors is the best when it comes to getting funding without any collateral, but they have their own pros and cons. While many entrepreneurs are unaware that banks and other financial institutions provide business loans for entrepreneurs to start, boost and scale their business.

If you need venture capitalists for your fund you can directly read our list of 50 Venture Capitalists in India who invest the most in Indian startup ecosystem. While we have also written a bunch of articles that contain the list of angel investors from New Delhi, Mumbai, Chennai, Hyderabad, Bangalore as well as the USA.

However, let us continue talking about banks. Banks are the largest funders for startups in India with a portfolio of thousands of startup fundings every year and counting. Before diving into details let us answer some of the most common questions that may arise in the minds of any entrepreneur.

Do banks provide loans for startups?

Yes! banks and lot of other NBFC provide loans for startups in India as well as most of the other countries. A variety of loans can be availed depending on the requirement including but not limited to the term loan, working capital and asset backed loans. Some banks may even lend to start a business if they are convinced and satisfied with the proposed business model. They need to be sure about the return ability.

Can I get a bank loan for research and development?

Yes! that’s possible. As a startup, you can definitely avail loan benefits for research and development of technology. However, till date almost all the banks provide asset backed loans for R&D and require collateral. Any asset related to your business including office, residences or any sort of properties can act as a collateral. Banks generally lend up to 70 percent of the market value of the collateral as loans with a tenure of 7-15 years. Additionally, the entrepreneur or concerned person from the company has to show the projected returns to the bank.

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Can I get a bank loan for stocking inventory?

Yes! as a startup founder you can get a working capital loan from the bank to stock and fill your inventory with goods and products. Banks try to assess the working capital requirements through their experts and associates based on the projections provided and may take a conservative approach while providing working capital loans.

Can I get a bank loan for buying machinery and equipment?

You can get term loan from banks to fulfil these kinds of requirements which related to asset and capital building. Yes! machinery and equipment work as an asset for any company and have resale value. A term loan can help you buy your requirements. Banks are generally more favourable towards term loans for machinery and equipment.

Can I get collateral free start-up loans?

The CGTMSE provides a framework for banks to extend a loan up to ₹1 Crore without any security or collateral. CGTMSE stands for Credit Guarantee Fund Trust Scheme for Micro, Small and Medium Enterprises. These kinds of loans are provided by banks very selectively to only deserving entrepreneurs and startups businesses.

How to Get Collateral Free Bank Loans?

Entrepreneurs in India face a lot of difficulties while getting loans under CGTMSE scheme as they are unaware of the banking principles and practices. We are listing some of the prerequisites to keep in mind while approaching a bank for getting a g collateral free loan.

Before you plan to approach an investor or a bank for asking a collateral free loan, it is best advised to prepare a Detailed Project Report (DPR). Or simply a pitch. Prepare a pitch that explains the business model, promoters background, revenue model, estimated sales, estimated profit, estimated growth rate and returns. The return on investment or ROI is the most crucial element looked at by banks as well as investors before putting surplus into the startup.

Apart from the DPR, an Applicant Requires The Following Documents

Company Registration Certificate: The certificate of incorporation is a legal document relating to the formation of a company or corporation. It is a license to form a corporation issued by the state government. Its precise meaning depends upon the legal system in which it is used.

MSME registration: The registration of the business under the MSMED Act.

Individuals IT returns for three years: Every individual filer who earns a certain amount of income must file this type of tax return – the statement of earnings from various sources of income, tax liability thereon, details of tax paid and any refunds that have to be given by the government. If the company is in business for over a year then the company IT returns too.

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Business proposal: The written documents stating the sale from the seller to the prospective buyer.

Provisional balance sheet: The financial document widely used by companies to prepare for financial audits or report financial information for any reason.

To attain a loan, the projected revenue amount of the business should be 4X of the loan requested. Manufacturing companies need to show assets and stock statements.

3 Best Collateral Free Startup Business Loans Providers

LendingKart

LendingKart’s process is simple yet fast. You just have to fill an eligibility form online at their website and wait for their representatives to call you. Once confirmed, you can avail a collateral free loan up to ₹1 crore.

LendingKart has already disbursed more than 11000 loans in more than 650 cities across India. The company claim to provide loans within 3 days of application.

Website – www.lendingkart.com

Bajaj Finserv

Bajaj Financial Services is one of the most trusted financial organisations in India. Startups with a minimum age of 3 years can avail a collateral free startup business loan up to ₹30 lakhs from Bajaj Finserv. The whole application procedure is online and you can manage your account on the dashboard they provide. You can also avail extra top-up credit to your existing loan with a click of a button.

Partnership, Private Limited and Limited Liability companies can avail the business loans. Bajaj Finserv provides business loans to traders, startups, manufacturers, retailers and proprietors. You need to provide your company’s bank account statement for 3 months along with KYC documents.

Website – www.bajajfinserv.in

Canopi

When you submit your invoice on Canopi, you will know upfront what your interest rate and other charges are. There are no hidden fees, no early payment charges and the interest rates are completely transparent. So transact with us without worries of hidden charges eating into your margins.

Register with them, submit your invoices, track your payments, all without leaving your office. Canopi’s solution is completely online and you will never have to visit a branch office for your loans.

Website – www.canopi.in

Apart from these 3 startup business loans provider, several banks and NBFCs provide collateral free business loans. To get the best results, you can always hire a financial advisor or just Google the required terms.