Launching a startup is the first step for many budding entrepreneurs. Indeed, most of us would love to launch a startup. Unfortunately, there’s a major stumbling block. And that’s money- or rather- seed money or initial investments to launch the startup venture and ensure it withstands the test of time and market conditions.
Nowadays, there’re several avenues to get seed funding or investment for a startup. These include Venture Capitalists, crowdfunding, personal savings, borrowings from family and friends, money from the sale of personal or family assets and business loans.
Each of these ways of funding startup is excellent and depends upon the nature of the business. However, business loans for startups is a great choice in India. And for a good reason.
Surely, you would love to know why business loans for startups is a great choice and my reasons for making such a statement.
Therefore, stay with me as I guide you through various reasons why applying for a business loan is a great choice for startups.
Before informing you why business loans are best for startups, here’s something you need to consider. Any loan is an obligation. It’s an obligation to pay off the creditor which is usually a bank or Non-Banking Financial Company (NBFC). The creditor will charge interest. The business loan is usually of limited duration only.
Therefore, any default on a business loan can severely damage your credit score and render you ineligible to borrow money from banks and NBFCs for any other purposes such as buying a house. Getting a credit card can become impossible too. Because lenders now check your CIBIL score or credit ratings before advancing money.
At the same time, they’re very good reasons why a business loan for startups is great.
There are several reasons why a business loan is ideal for a startup. And here I’ll explain these in steps.
Any startup can get a loan under the Micro Units Development and Refinance Agency (MUDRA) Bank scheme of the Indian government. MUDRA Bank isn’t a bank. Instead, it’s a scheme the Indian government offers through the various public sector, private and cooperative banks.
There’re various schemes under MUDRA Bank. These offer soft payment terms and lower interest rates depending upon the nature of your startup business. Unfortunately, few people are utilizing this scheme because they are largely unaware of the benefits it holds.
For women entrepreneurs who want to start a startup, a business loan is a great choice for them. Why? Because banks offer heavily discounted rates to women on business loans. These are initiatives under the women empowerment drives of banks and the government and the pressing need to bridge the income gender inequality divide that’s rampant in India.
Married couples or startups with a woman partner can also avail of these discount rates and other benefits while taking business loans from a bank. Additionally, a group of women can launch startups and get immense benefits from banks on business loans too. These benefits for women are seldom available when taking loans from other sources.
Banks in India are better able to serve startup businesses located in remote or distant parts of the country. Usually, other financers will shun a startup based in rural or remote parts of India. Again, the Indian government, to encourage rural entrepreneurship has several schemes for rural startup owners.
Therefore, if you’re starting an enterprise in a rural area, a bank is your best bet for getting a business loan. Certain banks have special interest rates for rural startups too. You can check these with your local bank branch. Since banks have a remote reach, they’re better able to understand the needs of the local people. Hence, they’re in a better position to allot business loans based on various criteria.
Venture capitalists and others require lots of convincing. Because they’re looking for profits or equity in a startup. Hence, they are very choosy when selecting a startup for funding. Banks give loans on the merits of the startup and the borrower. Hence, a business loan from banks is a great choice for startups in India