Business Loan - Steps to Get MSME Loans to Start a New Business

As per Nasscom, India has the third-largest startup ecosystem globally with more than 8,900 startups, and the number is only increasing per year. This has become the new steaming investment area and easily attracts investors and loans.In 2018, the startups in India witnessed a growth of a whopping 108%. So, if you are an entrepreneur looking for a loan to start a new business or expand an existing one – here are some easy steps that will guide you through it.

No matter the lender – private or Government, all of them will review the potential of a business plan before providing funds. A business plan should be crisp and must include:

1. Executive summary
2. Company description
3. Market research and potential
4. Product/service description
5. Management and operational structure
6. Marketing and sales strategy
7. Past (if any) and projected financials

Evaluate how much funds are required by considering factors such as:

1. Operational cost
2. Maintenance cost including permits and licenses
3. Existing and forecasted debts
4. Funds available
5. Current revenue
6. Future revenue estimation

Also, evaluate the existing client base and future potential of the business idea to finally arrive at the required amount of loan to start a new business.

Register the business under the concerned law/authority and compile all necessary loan documentation, such as:

1. 2 passport photographs
2. Identity proof such as passport, Adhaar Card, Pan Card, etc.
3. Address proof
4. Age Proof
5. Bank account statements (6 months)
6. Income proof – ITR or salary slip
7. Signature proof
8. Cancelled or scanned cheque

Once done, assess your eligibility for the loan; though the eligibility criteria vary per the lender, some common requirements of applicants include:

1. Age between 21 to 65 years
2. Indian citizenship holder
3. Credit score (680+)
4. Existing business plan

In the end, select the type of loan required. New business loans are of two types:

Line of credit:

Equipment Financing:

1. Only pay for the sum used; no interest levied for the first 9-15 months, post which it is charged between 8%-20%
2. Loan against business equipment to gain low-interest rates. The cost of the equipment should be paid with revenues from business

Both loans types require different documentation and offer varied benefits, which must be evaluated per your requirement. Also, study Government vs private lenders and apply accordingly.Post completion of these steps; apply for a loan from the selected lender either in person or through an online application. One must be cautious and study all documents carefully before applying for a loan to start a new business.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.