The sole proprietorship is one of the most common business types. In India, more than three-fourths of businesses consist of sole proprietors. They enjoy various benefits such as easy setup, less paperwork, better control over their business etc. These benefits make them a popular choice among new entrepreneurs. However, when compared to larger firms, they are at a huge disadvantage, especially when it comes to capital and technology. Luckily, securing a business loan helps sole proprietors overcome these disadvantages.

How Business Loans Help Sole Proprietors

As a sole proprietor, their primary source of capital will be their personal savings and assets. At the start, this capital might be sufficient, but as the business grows there will be larger financial needs and requirements, such as upgrading machinery, hiring new employees, opening a new branch etc. Without proper funding, the business is at high risk as there are chances of unexpected expenses as well as negative market trends. 

These problems can be solved by securing a business loan. Business loan help sole proprietors by providing them with adequate funding which will help them tackle the above-mentioned problems. They can spend the amount received from business loans on upgrading their equipment, buying extra stocks or even expanding their business. Also, with proper funding, they can compete with larger firms in the market. 

Top Business Loan Schemes for Sole Proprietors in India

In a country like India, a sole proprietor has a wide range of options to secure business loans. The following are some of the top loan schemes available for sole proprietors in India:

  • MUDRA Loan scheme

MUDRA is a loan scheme launched under the PMMY by the Government of India. The main objective of MUDRA is to support small and micro enterprises across the country by providing reasonable and easily accessible credit. The key features of this loan scheme are:

  • Loan amounts up to 10 lakhs
  • Interest Rate varies between 8% to 12%
  • Loan tenure ranges between 3 to 5 years
  • No collateral required

  • Stand-Up India Scheme

Stand-up India scheme is a scheme that will be useful for SC/ST and women sole proprietors. This scheme was launched by the government of India to promote entrepreneurship specifically among women, Scheduled Castes (SC), and Scheduled Tribes (ST). The main of the scheme is to provide financial assistance to these underrepresented groups to start or expand their business. The key features of this loan scheme are:

  • The scheme is only eligible for SC/ST and women entrepreneurs 
  • Loan amount up to Rs. 1 crore
  • Interest Rate varies between 8.5% to 10%
  • Loan tenure up to 7 years
  • No collateral required

  • Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

CGTMSE was launched by the government of India under the Ministry of Micro, Small and Medium Enterprises (MSME) and the Small Industries Development Bank of India (SIDBI).

Sole entrepreneurs who are engaged in activities such as manufacturing, retail trade, and service sectors are eligible for this scheme. The key features of this loan scheme are:

  • Loan amount up to Rs. 2 crore
  • Interest Rate varies between 10% to 14%
  • Generally, the loan tenure is up to 7 years
  • No collateral required
  • Annual guarantee fee of 0.37%

  • PSB Loans in 59 Minutes

PSB (Public sector banks) loans in 59 minutes is an interesting loan scheme launched by SIDBI (Small Industries Development Bank of India). This loan scheme approves the loan scheme in just 59 minutes which helps entrepreneurs who have urgent fund requirements. After approval, the fund will be disbursed within 7-8 working days. The key features of this loan scheme are:

  • Loan amount up to Rs. 5 crore
  • Interest Rate starting from 8.50%
  • Loan tenure is up to 15 years
  • No collateral required
  • Minimal documentation and faster processing

Eligibility Criteria

However, to avail the above-stated loan schemes, there are some eligibility criteria. Even though each scheme may have its specific requirements, most of them share common criteria. Below are some of the general eligibility conditions for these loans:

  • The applicant must be between the age of 18 and 65. Some loans have a minimum age requirement of 21. 
  • He/she should be an Indian citizen.
  • The business must be owned and registered in the applicant’s name.
  • The applicant should have a good credit history. This point is really important as the lender assesses the creditworthiness of the borrower depending on their credit score. 
  • Some loans require a minimum turnover requirement. In such cases, the business should meet the minimum turnover requirement set by the lender.

Documents Required

Mostly, while applying for a business loan, a sole proprietor will need the following documents:

  • Identity proof (Aadhar card, PAN card, or voter ID)
  • Address proof (utility bills orAadharr card)
  • Applicant passport-size photo.
  • Business registration certificate
  • Proof of category like SC/ST/OBC/Minority, if applicable
  • Last six month’s bank statements.
  • Project report/ Business plan
  • Income tax returns of the past 1-3 years

How can we help you?

In the above list, we saw that a Business plan/project report is a crucial document when applying for a bank loan. The bank uses this document to analyze the overall feasibility, risks, financial viability, and potential of a project. Also, a well-crafted and convincing project report increases the chances of loan approval.

With Finline you can craft a compelling project report in less than 10 minutes, that too in your language. All public and private sector banks working in India accept our reports. Click to create your project report.