Startup business loans are a type of financial support designed to assist new enterprises in their growth and development. These loans are available to individuals who are either looking to establish a new business or have recently launched one and require additional funding to sustain their operations.
According to research, FY 23 has seen the emergence of approximately 1300 new startup businesses in India, making it a trailblazer in the global start-up industry. As of now, India ranks third in terms of the largest startup ecosystem in the world, with 108 Unicorn start-up businesses calling India their home. The sustainable development of this field has the potential to positively impact India’s economic future. However, startups often face various challenges in generating sufficient working capital during their initial stages due to limited resources. Therefore, startup business loans can prove to be useful for such entities.
Eligibility criteria for availing startup business loans in India
The eligibility criteria for startup business loans in India can vary depending on the lender and the type of loan. However, here are some common eligibility requirements that startups need to meet:
1. Age of applicant
The age of a business owner can be a significant factor when seeking a loan, as lenders may consider it in their decision-making process. The specific age requirements can vary depending on the internal policies of each lender, but typically, loan applicants between the ages of 18 and 65 are considered eligible for funding
2. Residence of applicant
It is important to remember that to qualify for startup business loans from financial institutions in India, the applicant must be a citizen who lives in the country. Therefore, it is crucial to have documents that serve as evidence of the applicant’s and business’s address on hand. The financiers will examine the validity of these papers before releasing the loan funds.
3. The necessity of a business plan
Before granting a loan to a borrower, a lending institution will assess the financial prospects of the borrower’s business to protect itself from potential losses if the borrower defaults. To evaluate the repayment capabilities of the business in the future, the lender will require a well-maintained business plan that outlines the basic operations of the business and its plans for sustainable growth. The plan should include an executive summary, details of the products and services offered by the business, marketing proposals, expenditure strategies, and budget details. Business accounting follows the traditional Going Concern concept, which takes into account present assets to meet future fiscal liabilities. Failure to produce this document may reduce the borrower’s chances of obtaining startup business loans.
4. Registration of business
It is necessary for startups to be registered in order to obtain startup business loans in India. Most banks and financial institutions require businesses to provide proof of registration as part of the loan application process. This is because registration provides legitimacy to the business and enables the lender to assess the company’s financial stability and creditworthiness. Additionally, being registered also allows startups to access various government schemes and benefits that can aid in their growth and development.
5. Vintage and turnover of business
When granting startup loans, lenders take into account the market experience and profitability of a business, among other key factors. Traditional lenders typically prefer businesses that have been operating for at least 2-3 years and have a high annual turnover, with some lenders setting a minimum threshold of Rs. 40 lakhs. However, these strict regulations can pose difficulties for early-stage startups seeking startup business loans. As a result, many such borrowers are exploring alternative financing options.
What if you’re rejected for startup business loans?
In case your application for a startup business loan is denied, there are several options available for funding your new business. You can begin by contacting the lender directly to understand the reasons behind the rejection. This feedback can help you identify areas that require improvement and increase your chances of approval in the future. Alternatively, you can focus on developing your business’s finances until it becomes eligible for a startup business loan or other financing options. However, if you are short on time and cannot wait to enhance your credit profile or grow your business, you can explore alternative forms of financing.
Razorpay Line of Credit – An alternative to traditional startup business loans
Razorpay Line of Credit offers businesses an alternative way to secure funds without having to meet strict eligibility requirements for online business loans. With credit limits of up to Rs. 25 lakhs, It is particularly beneficial for startups who may not have a strong credit history or assets to pledge as collateral.
Razorpay Line of Credit has no processing charges, maintenance fees, or pre-closure fees, which further reduces the cost of borrowing. Businesses that have been operating for at least 12 months and have an annual turnover of Rs. 20 lakhs are eligible for this credit service.
Frequently asked questions
Q1. Why should I opt for Razorpay Line of Credit?
Ans. Line of Credit by Razorpay may have some benefits over traditional startup business loans. One advantage is that there are no processing or pre-closure fees to be paid to the platform, which can be different from traditional loans. Furthermore, there is no need to submit a new application when making re-withdrawals.
Q2. What is the interest rate on Razorpay Line of Credit?
Ans. The interest rates on Razorpay Line of Credit starts at a nominal of 1.5% every month. Also, you pay interest only on the amount you withdraw.