A lot of us would love to launch own startup businesses. However, there’s one major factor that stops us: money. Often, we wonder from where would we get the money to invest on funding a startup. That could be because we might not have adequate resources at that moment and are reluctant to request family and friends for financial help.
Actually, the lack of money needn’t be a hurdle when trying to launch a startup business. That’s because there are several low interest rate funding options for startups that’re available in India. In this article, I will discuss some of these low interest rate funding options that you could consider.
Therefore, here’re some facts about startup businesses.
Facts & Figures About Startups
About 60 percent to 90 percent of all new startups flounder and fail during the first five years of their inception, according to various reliable sources. Shortage of money to sustain the startup from the second year of its founding is said to be the main reason for such failures.
Another reason for failure is that most startups are copycats of successful businesses. Hence, they’re unable to compete on equal grounds with a well-established startup in the market. This means that a new startup won’t get as many customers as the established ones. Hence, they undercut prices and end up with losses. This translates directly as inability to continue funding the startup.
Generally, any business takes a few years to start recording profits. After seed funding to launch a startup, most crowd funders and venture capitalists are willing to invest more money in your startup only after they see the returns. Obviously, during the first year, revenues will only trickle in because the business is yet to establish itself and the number of customers would hence be lower.
As a result, most startups begin encountering financial issues after the first year. However, there’re low interest rate funding options available from various sources in India. And you could utilize any of these to fund your startup.
In this article, I will be discussing some of these low interest rate funding options that you could consider, if you’re planning on launching a superb startup business.
Low Interest Rate Funding for Startups
I’m listing some of the options for low interest rate funding for startups that’re available from various sources in India. You could go for one that suits your needs and the nature of business of your startup.
The thing worth remembering is that getting funding for startups is possible when you have a unique idea and business model.
In 2014, the Central government and the Ministry of Finance as well as the Ministry of Micro, Small and Medium Industries (MSME) launched a scheme known as Startup India. Under this scheme, you can get instant loans from various Public Sector Undertaking (PSU) or nationalized banks in India.
The interest rate varies from 12 percent per annum to 18 percent per annum and depends on various factors such as location of the business, number of people you would be employing, nature of the business and importance of the startup to the Indian industry and economy. Under the Startup India scheme, you can also request the Indian government to promote your business within and outside the country.
Stand-Up India is a scheme from the Indian government. This scheme is specifically for persons that hail from the Scheduled Castes and Scheduled Tribes but aren’t part of the ‘Creamy Layer’ as defined by the government. Mainly, Standup India aims at encouraging women entrepreneurs from Scheduled Castes and Scheduled Tribes, and especially those residing in rural areas, to launch a startup.
These loans are available on very soft terms from PSU banks and select private banks to such entrepreneurs. They can avail startup funding from Rs.1 million to Rs.10 million under the scheme. Interest rates vary from eight percent per annum to 12 percent per annum. You can also avail a lot of other benefits if your startup will be based in a rural area and generate employment there.
Another excellent initiative from the Government of India is the web portal, www.psbloansin59minutes.com. This portal allows you to avail of loans from all PSU banks in India. The scheme is sponsored by the Small Industries Development Bank of India (SIDBI). All you need to do is visit this portal, fill out the startup loan financing forms online and submit.
Usually, you can get a loan approved within 59 minutes from the time of application from psbloansin59minutes.com. The loan amounts for startups varies between 8.5 percent per annum to 12 percent per annum. The minimum loan amount is Rs.1 million and maximum available under the scheme is Rs.5 million. This is one of the best ways to get a startup loan in India at lowest possible interest rates.
The Pradhan Mantri Micro Units Development and Refinance Agency (MUDRA) is also another superb way to get low interest rate funding for startups. You can get a startup loan with interests starting from 8.5 percent per annum. Generally, MUDRA offers you business loans starting from Rs.1 million up to a maximum amount of Rs.5 million. The repayment period is five years from the date of disbursement. However, in some instances, you can get a repayment holiday of up to two years, if you’re launching a startup in the rural areas and would generate employment for rural residents of India.
You can avail of a MUDRA loan from any participating bank. These include most PSU banks as well as a lot of private sector ones. However, the interest rates and certain benefits such as loan repayment holidays depend on the bank. The time taken to process a loan under the MUDRA scheme is usually 21 days to 45 days. The loan is also available for existing businesses in the MSME and unorganized sector that wish to expand their reach and grow to full-fledged startups.
Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE) is yet another scheme sponsored by the Government of India. This scheme offers loans of up to Rs.500,000 to first-time borrowers to launch startups and other small businesses. This scheme is also administered through PSU banks in collaboration with SIDBI and Ministry of Finance.
Loans for startups available under the CGTMSE scheme are mainly for micro and small industries. Preference is given to MSME startups in rural and developing parts of India. You can get a higher amount if your startup would help that area come under the Smart City or Smart Village category, also an initiative from the Indian government. Repayment period is usually five years. However, in select cases, you can get a loan of up to seven years.
6-SIDBI Growth Capital and Equity Assistance Scheme
The Small Industries Development Bank of India (SIDBI) also sponsors another superb scheme for startup entrepreneurs in India. Known as the SIDBI Growth Capital and Equity Assistance Fund, the bank will hold equity in your startup till the loan amount is paid off. This is different from a collateral since you’re not pledging any assets of the startup or any other valuables to SIDBI. Instead, the bank only considers the profits from its equity holdings in your startup as the repayment amount.
You can avail of the GCEA scheme if your startup is new or has been functional for a maximum of five years. The loan amount differs from Rs.1 million to Rs.5 million and is given on a case-to-case basis only. Interest rates are between 8.5 percent and 12 percent. The loan has a tenure of five years. However, if you’re regular in your payments of the installments, you can also seek a top-up loan after a period of two years. This system allows for further expansion of the startup.
7-Loans from Apps
Loans from various apps are also available from various apps and websites run by private Non-Banking Financial Companies. However, they come at a stiff interest rate of whopping 24 percent. The loan amount can vary from a few thousand Rupees to as much as Rs.2.5 million, depending upon the credits score and other factors.
Generally, these loans are unsecured and hence the higher interest rates. However, the only silver lining to these loans being they’re available within a short notice of about 48 hours to 72 hours from the time of application. Such loans from apps and private lenders are the last option for any entrepreneur that wants to launch a startup and cannot get one from other sources.
8-Cooperative Credit Societies
India has thousands of cooperative credit societies, including those operated by members of specific communities and ethnic groups. These cooperative credit societies are allowed basic banking functions such as keeping Fixed Deposit, Recurring Deposit and Pygmy Savings accounts from people. However, they also provide loans for startups and businesses.
Generally, business loans from cooperative credit societies range from Rs.10,000 to Rs.250,000 and come with interest rates starting at 12.5 percent per annum. Generally, such loans are available to Self-Help Groups and individual entrepreneurs that wish to establish small businesses in rural or even a few semi-urban areas.
9–Micro Loans from NPOs and NGOs
If you don’t require a large capital to launch your startup or for its expansion, the shortest route to get a loan is from Non-Profit Organizations and Non-Government Organizations. These organizations generally fund startups that would help people lead a better life due to products and services of your startup. For example, you could have a startup that makes prosthetic limbs for the disabled and look for funding from NPOs and NGOs.
These NPOs and NGOs don’t charge an interest since they’re prohibited from lending money. However, they will participate as an investor in your startup. This means, they will hold an equity in your startup worth the amount they’re funding. And their returns are commensurate with their shareholding in the startup venture. This system is best for small loans for startups that’re less than Rs.100,000.
Crowdfunding is another attractive way to get funding for your startup. Here you don’t need to pay any interest as such. However, you’ll have to promise free products of your startup to your investors. This is the most ideal for of funding a startup since you don’t have to approach banks and give any commitments for repayment. The only repayments are in forms of sops to investors.
There’re several crowdfunding platforms in India with whom you can tie-up and launch a campaign. They’ll create a campaign page for your startup. You’ve to weave a superb story for your startup and its idea for their campaign page and give details such as leadership profiles of the business and how you intend to use the money from crowdfunding, among other details.
Generally, you will require a credit score of 750 at least to apply for a startup loan from any bank, NBFC or private financer. Additionally, you need to submit documents such as a business plan, profiles of one or more partners of the startup, history and knowledge in the particular field and market feasibility report to the prospective lender to consider your loan application. Nowadays, its fairly simple to get a startup loan in India if you meet these requirements. If not, you can explore crowdfunding or some Venture Capitalist (VC) to fund your startup since these might work out cheaper.