We have noticed an upsurge in the number of start-ups in our country since the introduction of the 'Start-Up India' campaign in 2015. The environment has been favorable for entrepreneurs to take the initiative and create their own businesses, and it is now easier for them to do so owing to the government's recent actions to promote them.
However, funding is ought to for any entrepreneur looking to launch their business enterprise. And this funding is quite important, particularly in the beginning. Funds are needed for a new business establishment in order to establish a location, start operations, start marketing, hire employees, and create goods and services, among other things. It is important for aspiring company owners to question themselves, "Where do I arrange capital for my business?"
There are several different finance sources accessible in India nowadays. There are more financial institutions than one can count, ranging from banks to NBFCs, and the majority of them provide the service of "Start-up loans."
What is a Startup Loans
This unique kind of company loan functions similarly to a credit card and is given by a financial institution. If banks and other NBFCs are confident in the business plan, growth prospects, and potential for profitability, they will lend entrepreneurs money for their startup.
Types of Startup Loans
Startups are eligible to qualify for a huge variety of loans, every with a specific cause. For example, a business that values flexibility may be better off with a line of credit, but one that has to make a huge one-time purchase may consider that a term loan could be a better choice.
To secure the ideal funding for your business, it is essential to comprehend the many kinds of startup loans and when to employ each.
SBA loans: These government-backed loans offer larger lending limits and simpler approval procedures. Borrowers can acquire loans up to $5 million under the SBA 7(a) program.
Credit Lines: A line of credit gives you access to funds that you may use whenever you need them, up to a specified limit. The majority are revolving, meaning that as you repay previous loans, you continue to borrow from the credit line.
Microloans: SBA lenders frequently offer these little loans. The SBA will only lend up to $50,000 in total.
Term loans: Term loans are good for one-time purchases since they distribute cash all at once. Both short-term and long-term company loans are available.
Equipment financing: These loans are used to purchase expensive equipment and have extended payback terms. The equipment acts as collateral, making qualifying simpler.
Invoice factoring and financing: By selling the value of outstanding bills to a third party, you may immediately obtain money.
Private loans: You may also be able to obtain a loan directly from an investor, through peer-to-peer financing, or from relatives and friends.
Perks of Startup Loans
The following are some advantages of obtaining a start-up loan to launch your business:
Low-interest rate: Banks expect a smaller return in the form of a low interest rate as compared to angel funding or venture capital investments. The interest rate might range from 10-17 percent, depending on the credit score of the entrepreneur and the firm.
Simplified process: Compared to trying to contact investors and ask for cash from them, approaching a bank for a start-up loan is incredibly simple.
No profit-sharing: Not having to split your profits with the bank is another significant advantage of taking out a start-up loan. You alone own your gains. In contrast, you will have to involve VC or angel investors in your company's earnings if they fund your business.
Acquiring a start-up loan is straightforward, but in order to grow your business and earn a profit, one must maintain a good credit score and make prudent use of the funds.
Alternatives to Startup Business Loans
For fledgling businesses, startup loans are a helpful source of capital. They do, however, offer advantages and downsides, similar to other types of funding. When seeking to generate funds for a firm, it is vital to consider all available options. Alternatives to beginning financing for businesses include:
Grants: Funds from a grant may be used to launch or grow a business without needing to be repaid. Grants may be intended for certain groups or businesses, but there is a lengthy and demanding application procedure. However, if you want to stay away from debt financing, it's a fantastic choice to think about.
Merchant cash advances: Many businesses are qualified for merchant cash advances, which are a good option if your startup needs quick funding. Future debt and credit card sales are used by merchant cash advances to pay back the loan. However, losing a portion of one's future income in order to pay back the loan might easily lead to a debt spiral.
Credit cardS for businesses: Credit cards provide a versatile solution to help entrepreneurs cover their running costs. You may save money with the introductory interest rates and benefits that come with some of the best business cards. In addition, there won't be any interest applied to you if you repay the entire amount each month.
So to conclude, if your firm has been operating for at least six months and you have a solid personal or business credit history, your chances of being accepted for a startup loan will be highest. Applying with polished paperwork, such as your company financial statements and a business plan outlining your loan repayment strategy, is advised for lenders that grant business loans to entrepreneurs.
You will begin loan repayments when the lender approves you based on your capacity to return the money. To find out which lender would accept your business with the greatest loan offer, you may compare loan offers from several lenders.
