How to Get a Business Loan for a Startup: Tips for New Entrepreneurs

Shubham Sinha | Published On: October 23, 2024

Applying for a startup business loan in India as an entrepreneur can be challenging if you don’t have a fair idea about the credit types available and their terms. With countless options out there, comprehending the eligibility criteria, necessary documents, and application process can be critical in enhancing your chances of getting through. This is a complete guide to business loans for startups in India, covering basic tips for new entrepreneurs like you.

Eligibility for a business loan

You must satisfy certain essential business loan eligibility criteria to get fund approval. These are:

The age of existing businesses should not be more than five years.
Annual turnover/ revenue should not exceed INR 25 crores in a single financial year.
Business loans are available only to Limited Liability Partnerships (LLPs) or Private Limited companies, not proprietorships or partnership accounts.
Eligible applicants should also obtain DIPP approval.
Government startup loans need certain guarantees.

Documents required for business loan

While applying for a startup business loan, you will be required to submit the following documents:

Photographs: Two passport-size copies
Identity proof: PAN card, passport, aadhaar card, voter’s ID, driving license
Address proof: passport, driving license, aadhaar card, postpaid phone bill, voter’s ID
Bank statement: Last six months
Income proof: Income tax returns, salary slips, PAN card
Proof of bank account: Cancelled/scanned cheque, passbook’s front-page copy

Factors determining the approval of business loans

Whereas sanctioning business loans remains exclusively at the discretion of the financial institutions, several factors go a long way in affecting your odds of availing of the credit. The following are five of the most important factors you need to know:

Nature of the business: The kind of business you seek a loan for may be the most important factor determining the business loan approval. This is because the magnitude of risk varies for each type of company or industry they are in. A bank may become unwilling to lend money to certain high-risk businesses.

Profitability: Your net profit can directly affect how much credit you get. Financial institutions have a minimum turnover eligibility for sanctioning loans. The higher your profitability, the better your chance to get that elusive business loan.

Credit history: Banks and other financial institutions provide loans only when they are pretty much assured that the entrepreneur can repay the amount. This surety is mostly assessed through the CIBIL score of the applicant. Having a high CIBIL score can help you get a business loan.

Business plan: Often, the companies that lose out on a loan sanction are those that fail to draft a well-formatted business plan. Properly writing a business plan, coupled with intentions on how the loan could be used, helps move the decisions in favour of the applicant.

Documents: Like all types of loans, the success of getting business loans depends on the documents the businessperson submits to the lending institution. Have all the necessary paperwork ready before going to the lender to secure a loan for your business.

Recommendations for new entrepreneurs

It seldom happens that a budding entrepreneur successfully gets a business loan sanctioned. A few suggestions that can increase your chances of getting credit approval are:

Prepare a good business plan: A thorough business plan will help you get a business loan. This should be a document that shows your business goals and financial projections and describes how you plan to use the money from the loan.

Maintain a good credit score: Maintaining a good credit score can help you obtain a business loan. So, don’t let a payment of a bill or an installment get delayed.

Prepare a complete loan application: Ensure that your loan application is very comprehensive and carries all essential documents.

Learn about the government loan schemes: The Indian government offers various loan schemes for MSMEs and startups. MSME loans for startups are also available. Learn about them and apply accordingly.

Use professional services: If you are a novice in the world of business, get professional help. Reach out to a financial advisor or a business consultant and increase the chances of getting your business loan approved.

Conclusion

Acquiring funding through business loans during the initial phase of a business can sometimes be very challenging. However, once you know how to become eligible for a business loan, what documents will be needed, and what other government schemes exist, you are well on your way to getting that fund. With the right approach and a little patience, you can secure funds for your venture.

At TallyCapital, we believe that every business is unique, with different challenges and potential. Thus, we provide customised business loans that fit your needs. We won’t stuff you with complicated loan structures; instead, we help you realise your business goals by listening to what you need and carefully formulating solutions that will best suit your needs.