Business Loan/SME Loan and Start-up Loans

Loan is a sum of money that needs to be paid back to the lender as principal along with the interest, but all loans are not same. When Rajesh wanted to start a new business, he searched for a Business Loan. His friend Karthik explained him the difference between the Business Loan and a new start-up loan.

Unique SMEs, unique needs

Loans for SME/Business Loans are usually in the range of Rs 5 lakh to Rs 50 lakh. RattanIndia Finance gives these loans for those who want or strengthen existing business. Basically, any entrepreneur running a small or medium business, like small scale manufacturing, restaurant, trading business can avail these loans.

Normal Eligibility conditions include the borrower to be in the age between 28-65 years running a profitable and stable business for three years, have a record of filing taxes. The loan tenure is usually between 12 and 48 months.

The SME/Business loan interest rate usually ranges from 18% to 24%. The actual rate depends on the financial and business profile.

New ideas, new start-ups

Although Start-up companies can avail term loan or working capital or asset-backed loans based on their requirements, Securing funds for a start-up is one of the toughest challenges an Entrepreneur faces while starting a new business. With a plethora of funding options available, it is important for the Entrepreneur to understand the pros and cons of each funding methodology, estimate the amount of funds required, the application of funds, projected financial position of the business including the returns generated and evolve a strategy – to approach and secure the required funds. With venture capital firms and angel investors enjoying plenty of coverage as a great source of funding for start-up, many Entrepreneurs are unaware that financial institutions and Banks are also an avenue of funding for start-ups. In fact, Banks are one of the largest funders of start-ups in India, providing funding to thousand of start-ups each year.  

To be eligible for start-up loans, the unit must be eligible and certified as a 'Start-up' by the concerned government authority as per Start-up India scheme. Such loans, given for up to Rs 5 crore, are given to finance for innovation, development, deployment of a new product, processes or services etc.

There are also start-up loans where the loan is given in form a line of credit (LC) or for equipment financing. For Line of Credit, if no security is required, interest rates are generally higher. In the case of start-up, loans given for the equipment financing, the equipment and tools used for Business are pledged as collateral. Hence, the interest rate would be lower that than no collateral financing.

Points to ponder upon for any business loan

It is important to understand rather estimate your repayment capacity and EMIs when it comes to business loans. Use RattanIndia Finance Financial Tools to help you.

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14 Mar 2019