Many entrepreneurs with great business ideas are unable to start their businesses due to a lack of funds. Money at the right time is one main factor that decides the start and the future of a business. However, when new entrepreneurs start, they discover that money becomes the major hurdle. The universal solution to this is nothing but a startup business loan. You borrow a startup loan to help you start operating your business, but like every loan, you have to pay it back.

A startup business loan facility offered by banks or other financial institutes to new businesses or can be used for various purposes such as purchasing equipment, furniture, raw materials, or paying for expenses incurred to set up a business such as purchasing or leasing a building, etc,.

How do you choose a business startup loan?

A startup loan can be extremely difficult to obtain. The main reason is simply the fact that banks do not want to take risks. Obtaining a startup loan often requires a lot of patience, effort, and determination. The maximum amount of startup business loan you can get depends on your business, its turnover, profitability as well as your credit history. Before choosing a startup business loan consider the interest rate, repayment terms, and policy, application fees, etc.

What are the different types of Startup Business Loans?

Startup business loans are classified into two:

1. Short Term Working Capital Loan

It is known as a short-term working capital loan or a line of credit. People use it to pay salaries or other expenses. There is no need for collateral for this loan. Also, it gives an initial interest-free period. The business can utilize this loan amount for its day-to-day operational costs. It will help you to run the business activity without any hindrance of the fund.

2. Long Term Loans

Long-term loan or equipment financial loan, used to fund the expansion or growth of the business, funds the expansion or growth of the business. This loan is available for a longer period. It would require the business as collateral. People use it for purchasing heavy or expensive machinery, inventory, long-term expenses, etc.

Also know: Business Loan Schemes for Startups In India

What are the Features and Benefits of a Startup Business Loan?

Startup loans are different from other financing loans for established companies and have various benefits and specific features.

1. Flexibility: It allows the business owner to concentrate on growth rather than just worry about repayment. It offers flexible repayment tenures for startups

2. Collateral: No collateral is required as startup loans are unsecured business loans.

3. Availability of Funds: Lenders ensure swift disbursal of the fund as soon as your loan is approved.

4. Tax Benefit: The new entrepreneurs will get three years of tax relief.

5. Compared with venture capital, the bank’s rate of return is fixed at a nominal interest rate.

Must read: Best Low Investment Business Ideas

About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline will help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. Also, all public and private sector banks working in India accept our project report. Click to create your report.

What is Term Loan: Types, Eligibility, Documents

Term loans are loans that are of a fixed amount distributed by the banks or NBFC to entrepreneurs. At the same time, entrepreneurs can use it for capital expenditure and expansion of business with fixed and floating rates of interest. It is a good way of quickly increasing capital with minimal risk involved. Flexibility in repayment, minimal documentation, and quick disbursal of funds are the benefits of these loans.

In the business aspect, term loans can be used to maintain the cash flow or to meet day-to-day business expenditures.

Considering the term loan as a source for your business plan/project report, this guide is useful to look forward to:

Types of Term Loans:

How to choose the right Term Loan for your Business?

Borrowers can classify term loans based on the tenure for which they borrow them; and also calculate the time for the asset to provide a return. Here’s what you need to know:

Short-term loan :

The loans mature within one year and 24 months. In the production industry, companies can use it as working capital for inventory purchases. It helps to boost the flow of cash in the business.

Intermediate-term loan :

The period for such loans could vary from 2 years – 5 years. These loans could be critical for the company’s cash flow. Typically, companies that are new and have established afresh may need such intermediate-term loans.

Long-term loan :

These loans can run anywhere between 3 years – 7 years and sometimes the maximum tenure will be 10 years. The company offers its assets as collateral. The repayment could be either monthly or quarterly as per the company’s profit or cash flow recognition. These loans are most appropriate for large construction businesses, purchasing heavy equipment, buildings, etc.

Other than these, few other things to be considered in terms:

Term Loans Category

Secured Loan:

Collateral security is required to be submitted to the lender by an applicant if he/she wants to avail secured loan from banks or NBFCs. Collateral submitted can be in the form of equipment, machinery, raw materials, stock, or residential/commercial properties.

Unsecured Loan:

Business loans offered by most financial institutions are unsecured loans that do not require any collateral or security to be submitted to the lender. The interest rate offered by banks and NBFCs for unsecured loans is comparatively on the higher side.

Who can apply for a Term Loan?

Age Criteria: The minimum age of the applicant should be 21 years at the time of loan application and the maximum should be 65 years at the time of loan maturity.
The applicant should be an Indian citizen.
Applicants should possess a good credit score.
Applicants should maintain a regular source of income.

What Documents Required to Apply for a Term Loan?

Passport-sized photographs.
Project Report/ Business Plan.
Filled application form.
KYC Documents (Identity, Address, and Age Proof) – Passport, PAN card, Aadhar Card, Voter’s ID card, Driving License, Utility Bills (Electricity, Telephone or Water), etc.
Business address proof: Property papers, rent agreement, or lease document.
Income Proof: Last 6 months’ salary slips.
CIBIL report, if required by the lender.
Last 12 months’ bank statement.
ITR, Sales Tax report, Profit and loss statement of last 2 years.
Any other document required by the financial institution.

Once the applicant submits the application, the bank’s representative may contact them and will proceed with the bank formalities.

In the above list, a Business plan also known as a 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. 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.