One of the most important aspects about launching a start-up is to obtain the necessary capital and funds for initial growth and establishment. A business loan can really help start-ups, but as you are aware, securing finance for a company that does not have sufficient vintage, can be difficult, however, it is not impossible. Many people think that loans for start-ups do not exist, but today, banks and NBFCs are prepared to offer credit to small and new businesses, if they meet certain criteria.
The funds can be utilized for purchase of supplies, furniture, inventory, equipment, workspace etc. Most of the low-cost options may not be available, if your business is still very new and lacks appropriate credit score. Yet, by being careful about few of the business particulars, you can improve the chances of securing finance.
Below, we have given factors to consider before applying for a start-up business loan in India.
- Firstly, have a concrete business plan. Give a complete analysis of cash flow, profits, income, future sales, and financial projections when pitching your organization for getting a loan.
- Keep necessary documents in place so that you can submit those when demanded. Be prepared with all the legal paperwork and identity, residence proof, and financial statements of the company so that the lender can trust your work ethic and review the business’s authenticity.
- Build assets and expand customer base as soon as you venture into the market, as it will help leverage the organization’s financial projections.
- Lastly, you need to apply for the right type of start-up business loan, such as business line of credit, equipment financing, credit line builders, or business credit cards.
- And now, you must simply drop duly signed loan application to the lending institution.
Which Expenses Do Start-up Business Loans Cover?
Just like a standard loan for business, a start-up loan can pay for any of the expenses incurred for the company purpose. It can be related to maintaining workforce, purchase of equipment, vehicles, machinery, technology such as tablets, printers, computers, inventory, marketing campaigns, arranging funds of getting permits and licences, ongoing expenses such as mortgage or rent, employee salary, other payments etc. Thus, there are several costs that a new organization can encounter, and a business loan will help fulfil all these costs and expenses.
How to Get a Business Loan for Start-Ups?
Traditional lenders are usually hesitant to provide loans to a new company that has no proven revenue and financial history. Because of lack of payment history, the lenders find the organization as a risky borrower. However, you can still get necessary funds for your venture company by gaining trust of the banks and NBFCs? How will you do so?
Below we have mentioned ways to enhance the chance of getting a loan for your start-up company.
- Investor Details: If you have approached any renowned investors who have invested in your company or plan to invest in it soon for sure, include them in the business profile.
- Market Opportunity and Achievements: If you are expecting a sudden or gradual increase in revenue and profits given a certain market situation, reach it out to the lending institute. If the company has won any awards or recognitions, then list those out as well.
- Collateral: If you have any asset to provide as security for the loan, let the financial institution know about it.
- Make Your Business Official: Get your business registered with the necessary party, arrange the needed permits and licenses which authenticates the business operation.
- Personal Credit Score: Keep your credit rating excellent. Since the bank will not have any financial data to review of the organization, it will certainly review yours, and that should be clean.
Types of Start-up Business Loans in India
There are several loan options for a start-up company, and below we have listed few of the preferred ones.
- Business Credit Cards: It is a great alternative to start-up loans. A business credit card will be provided against the business, but there will a thorough check of personal credit score and combined income from business and personal sources. You can avail added rewards and bonus on such credit cards as well.
- Micro Loans: These are small-sized loans and specifically provided to small and medium sized companies. The fund is usually given to pay for working capital, purchase of inventory, etc. Such loans are however for start-ups that have at least 1 year of existence.
- Invoice Financing: To receive payment from customers, you generate an invoice. It may take some time before the payment is completed, buy you may face an urgent need of funds. In such cases, you can opt for invoice financing, where the business loan is granted against the expected amount to be received, against the invoice.
- Small Cash Loans for New Companies: There are lenders who can provide cash in as less as 24 hours for business purposes. You can take out a small cash loan to pay for start-up expenses. However, these are short-term loans, thus you will have to repay sooner than standard business loans.
- Equipment Financing: You may require funds to purchase equipment to run your organization. There will be a requirement of computers, machinery, delivery vehicles, etc. All these tools, vehicles, and gadgets can incur a huge cost, for which you can consider equipment financing. You can receive up to 100 percent of the entire cost of purchasing equipment.
By following the above-mentioned steps, you can strengthen your chances of getting a business loan for start-up. The options of financing a new company as give-above, will also help you understand which type of loan will suit your start-up needs.