Startup Business Loan: 10 Best Loans for Startups in India

Starting a business in India is an exciting journey, but often, one of the biggest hurdles is securing the necessary funding. A startup business loan can be the vital fuel that propels your vision into reality. Navigating the world of loans can seem daunting, but don’t worry! This comprehensive guide will walk you through 10 of the best loan options available for startups in India, making the process clearer and more manageable. Here are 10 noteworthy loan options that startups in India can explore:

1. Mudra Loans (Pradhan Mantri Mudra Yojana – PMMY)

• What it is: A flagship scheme by the Government of India aimed at providing financial support to micro and small enterprises.
• Key Features:
  • Loans are categorised under three schemes:
    • Shishu: Loans up to ₹50,000.
    • Kishore: Loans ranging from ₹50,001 to ₹5 lakh.
    • Tarun: Loans ranging from ₹5 lakh to ₹20 lakh.
  • No collateral is required for loans under this scheme.
  • Available through banks, NBFCs (Non-Banking Financial Companies), and MFIs (Micro Finance Institutions).
• Who can apply: Startups and small businesses in the non-corporate, non-farm sector.
• Why it’s good for startups: Offers smaller ticket sizes suitable for early-stage needs and reduces the burden of collateral.

2. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Scheme

• What it is: A scheme that provides guarantee cover to lenders for extending loans to micro and small enterprises (MSEs), including startups.
• Key Features:
  • Covers loans up to ₹2 crore without collateral.
  • Reduces the risk for banks and encourages them to lend to new businesses.
  • The guarantee covers a significant portion of the loan amount.
• Who can apply: New or existing MSEs.
• Why it’s good for startups: Makes it easier to secure larger loans without having substantial collateral.

3. SIDBI (Small Industries Development Bank of India) Schemes

• What it is: SIDBI offers various schemes tailored to the needs of startups and SMEs.
• Key Features:
  • SIDBI Fund of Funds for Startups (FFS): Invests in SEBI-registered Alternative Investment Funds (AIFs), which in turn invest in startups.
  • SIDBI Make in India Soft Loan Fund for MSMEs (SMILE): Provides soft loans on attractive terms for setting up new enterprises in the manufacturing and services sectors.
  • SIDBI Startup Mitra: Offers guidance and financial assistance to early-stage startups.
• Who can apply: Startups and SMEs depending on the specific scheme.
• Why it’s good for startups: Provides access to both direct and indirect funding through a specialised institution focused on SME development.

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4. National Small Industries Corporation (NSIC) Schemes

• What it is: NSIC offers financial assistance to MSMEs to enhance their competitiveness.
• Key Features:
  • Raw Material Assistance Scheme: Helps MSMEs finance the purchase of raw materials.
  • Bill Discounting Scheme: Provides short-term working capital by discounting bills receivable.
  • While not exclusively for startups, these schemes can be beneficial for early-stage businesses needing specific types of financial support.
• Who can apply: Registered MSMEs.
• Why it’s good for startups: Offers specific solutions for managing working capital and procurement.

5. Bank Loans for Startups

• What it is: Many public and private sector banks in India offer specialized startup business loan products.
• Key Features:
  • Loan amounts, interest rates, and repayment terms vary depending on the bank and the specific scheme.
  • Some banks may require collateral or a strong business plan.
  • Examples include startup-focused schemes from SBI, HDFC Bank, ICICI Bank, etc.
• Who can apply: Startups meeting the bank’s eligibility criteria.
• Why it’s good for startups: Provides a traditional and often reliable source of funding with various options to explore.

6. Non-Banking Financial Companies (NBFCs)

• What it is: NBFCs also offer startup business loans with potentially faster processing times compared to banks.
• Key Features:
  • Interest rates might be slightly higher than banks.
  • Offer more flexible eligibility criteria in some cases.
  • Examples include Tata Capital, Bajaj Finserv, and others.
• Who can apply: Startups that meet the NBFC’s requirements.
• Why it’s good for startups: Can be a good alternative when quick access to funds is needed or when traditional bank loans are not an option.

7. Venture Debt

• What it is: A type of debt financing specifically designed for high-growth startups that have already raised equity funding.
• Key Features:
  • Typically offered by specialised venture debt funds.
  • Less dilutive than equity financing.
  • Often comes with warrants (options to buy equity in the future).
• Who can apply: Startups that have secured funding from venture capital or angel investors.
• Why it’s good for startups: Provides additional capital without significantly diluting the founders’ equity.

ALSO READ | Business Loans for Women Entrepreneurs in India (2025)

8. Angel Investors and Venture Capitalists (Equity Funding – Alternative to Loans)

• What it is: While not loans, angel investors and venture capitalists provide crucial funding in exchange for equity in the startup.
• Key Features:
  • Can provide significant capital for growth.
  • Often comes with valuable mentorship and networking opportunities.
  • Involves diluting ownership.
• Who can apply: Startups with high growth potential and a strong business model.
• Why it’s relevant: Equity funding can be a primary source of capital for many startups, reducing the need for debt in the early stages.

9. Government Schemes and Grants

• What it is: The Indian government offers various schemes and grants to support startups, particularly in specific sectors like technology, innovation, and agriculture.
• Key Features:
  • Financial assistance that may not need to be repaid (grants).
  • Often tied to specific criteria and application processes.
  • Examples include Startup India Seed Fund Scheme, Biotechnology Industry Research Assistance Council (BIRAC) schemes, and more.
• Who can apply: Startups meeting the eligibility criteria of the specific scheme.
• Why it’s good for startups: Provides non-dilutive funding and support for innovation.

10. Peer-to-Peer (P2P) Lending

• What it is: Online platforms that connect borrowers (startups) with individual lenders.
• Key Features:
  • Can offer faster access to funds compared to traditional institutions.
  • Interest rates and terms vary depending on the platform and the borrower’s creditworthiness.
  • Platforms like Faircent, Lendingkart (also offers other types of loans), and others operate in this space.
• Who can apply: Startups that meet the platform’s eligibility criteria.
• Why it’s good for startups: Provides an alternative source of funding and can be more accessible for some startups.

Key Factors to Consider Before Applying for a Startup Business Loan

Choosing the right startup business loan is crucial. Consider these factors:

• Loan Amount: Determine the exact amount of funding your startup needs.
• Interest Rates: Compare interest rates from different lenders to minimise borrowing costs.
• Repayment Terms: Understand the repayment schedule and ensure it aligns with your cash flow projections.
• Eligibility Criteria: Check if your startup meets the lender’s requirements.
• Collateral: Determine if the loan requires collateral and if you have suitable assets.
• Processing Time: Consider how quickly you need the funds.
• Fees and Charges: Be aware of any application fees, processing fees, or other charges.

ALSO READ | How to Get a Business Loan for a Startup in India? A Complete Guide

Preparing for Your Loan Application

A well-prepared application significantly increases your chances of approval. Make sure you have the following ready:

• Detailed Business Plan: A comprehensive document outlining your business idea, market analysis, financial projections, and management team.
• Financial Statements: If your business has any operating history, provide relevant financial statements (balance sheets, profit and loss statements, cash flow statements).
• KYC Documents: Know Your Customer documents for the promoters and the business entity.
• Bank Statements: Statements for your business and personal accounts (if required).
• Collateral Documents (if applicable): Documents related to any assets you are offering as security.

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Conclusion: Fueling Your Startup Dream

Securing the right startup business loan is a pivotal step in your entrepreneurial journey. By understanding the various options available in India, carefully evaluating your needs, and preparing a strong application, you can access the capital required to turn your vision into a thriving business. Remember to compare different lenders and schemes to find the best fit for your unique circumstances. Good luck!

Frequently Asked Questions (FAQs) – Startup Business Loans in India

1. What is a startup business loan?

A startup business loan is a financial product specifically designed to provide capital to new businesses or early-stage companies to cover various expenses like initial setup costs, working capital, expansion, and more.

2. What are the common types of startup business loans available in India?

Common types include Mudra loans, loans under CGTMSE, SIDBI schemes, bank loans, NBFC loans, venture debt, and funding from angel investors and venture capitalists (though the latter are equity-based).

3. Do startups need to provide collateral for business loans in India?

Many schemes like Mudra and CGTMSE offer collateral-free loans up to a certain limit. However, for larger loans or specific bank products, collateral might be required.

4. What is the maximum loan amount a startup can get in India?

The maximum loan amount varies significantly depending on the scheme and the lender. For instance, Mudra loans go up to ₹10 lakh, while CGTMSE covers loans up to ₹2 crore. Venture debt and equity funding can be much higher.

5. What are the typical interest rates for startup business loans in India?

Interest rates vary based on the lender, the loan scheme, the borrower’s creditworthiness, and the prevailing market conditions. Government schemes often have more favorable rates compared to NBFCs or P2P lending platforms.

6. What is the eligibility criteria for a startup business loan in India?

Eligibility criteria can include the age of the business, the promoters’ background, the business plan’s viability, financial projections, and compliance with the lender’s specific requirements. Some schemes are specifically for micro and small enterprises.

7. How can a startup improve its chances of getting a business loan approved?

A strong business plan, realistic financial projections, a good credit history (if applicable), and a clear understanding of the loan requirements are crucial. Demonstrating the business’s potential for success is key.

8. Are there any government schemes specifically for funding tech startups in India?

Yes, the Indian government offers various schemes and grants to support tech startups, often focusing on innovation and research and development. Examples include the Startup India Seed Fund Scheme and initiatives by the Department of Science and Technology.

9. What documents are typically required when applying for a startup business loan?

Required documents usually include a detailed business plan, financial statements (if available), KYC documents of the promoters and the business, bank statements, and collateral documents (if applicable).

10. Can a startup with a poor credit history get a business loan?

It can be more challenging, but some lenders, like NBFCs or P2P platforms, might offer loans to startups with less-than-perfect credit. Government schemes often have more relaxed criteria. Building a strong business plan and demonstrating high growth potential can also help.