According to NASSCOM, start-ups received $4.2 billion funding in 2018 compared to only $2 billion the previous. More than 7,000 small businesses came to life the same year creating around 40,000 jobs.
One of the primary reasons for the rise of start-ups in India is the easy availability of funding. There are multiple sources of business finance available not only from the private sector but also the government.
Financing options from the Government
1. MUDRA Loan
MUDRA Loan is part of the Pradhan Mantri Mudra Yojana (PMMY), catering to small businesses. Under this scheme, beneficiaries can avail the following three products:
I. Tarun – Loans ranging from Rs. 5 Lakh to up to Rs. 10 Lakh.
II. Kishor – Loans from Rs. 50,000 to Rs. 5 Lakh.
III. Shishu – Loans up to Rs. 50,000.
Borrowers availing this loan also get a MUDRA card that enables them to withdraw cash as and when needed from ATMs and also to make payments through a point of sale (POS).
2. MSME Loan in 59 Minutes
The MSME Loan in 59 Minutes is one of the sources of business finance that guarantees borrowers loans up to Rs. 1 Crore within an hour. This initiative was announced back in 2018 and is from the Small Industries Development Bank of India (SIDBI).
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE scheme) enables small businesses to avail these loans without any collateral.
Borrowers can apply for these loans online by following a few steps. They have to sign-in to the website, answer a few simple questions, enter their GST details, upload bank account statements, provide the purpose of the loan, select the lender, and pay the convenience fee of Rs. 1,000 + taxes.
3. Stand-Up India
The Stand-Up India scheme provides loans of up to and Rs. 1 Crore to at least one woman and at least one Scheduled Tribe (ST) or Scheduled Tribe (ST) individual. Loans under this scheme are offered only to businesses in trading, manufacturing, and services sector. This is one of the sources of business finance available to set up Greenfield entities only.
The scheme will finance up to 75% of the entire project cost. The rest 25% of margin money has to be brought in by the beneficiary from any other central or state Government schemes. However, the borrower has to contribute 10% of the project cost.
The interest rate for Stand-Up India loans will never be more than the base rate (MCLR) + 3% + tenor premium.
Financing option from private lenders:
1. Business loans
Standard business loans are one of the exceptional funding options available from a numerous financial institutions.
Some of the features of these loans include:
• Unsecured loans that don’t require any collateral.
• Financing up to Rs. 30 Lakh.
• Quick approval within 24 hours.
• Convenient tenors ranging from 12 to 60 months.
Borrowers can enjoy competitive and attractive business loan interest rates in India. They also have to provide KYC documents, business proof documents, Balance Sheet, Profit & Loss Account statement, and bank account statement of the previous month to apply.
2. Peer-to-peer lending
Peer-to-peer (P2P) lending enables borrowers to avail loans from lenders directly from through an online platform. The concept is fairly new in India and somewhat popular. The P2P lending market is regulated by the Reserve Bank of India (RBI).
These sources of business finance are the ideal option that entrepreneurs can opt for. Borrowers can also consider other funding options to raise capital for their business.