Loan for a Start-up Business

We always have a million dollar idea but the only thing that stops us is the lack of fund to start a business. Not everyone is born into money, it has to be earned. The only option that is left is to approach a bank to finance us. There arises another set of problems, the banks will review your plan and by the end of it they may or may not reject the loan application. So, in the end the decision to provide you loan is on the banks.

Banks and financial institutions provide financial assistance to those who need funding at the various stages of the company’s life cycle. Banks provide loans to novel business models, for research and development or to fund a business expansion. If you are taking an asset based loan or business loan then it is usually provided based on the market value of the asset.

The banks offer loans to the entrepreneurs to buy equipment or machinery for the business use and also to obtain working capital. Certain banks also provide loan up to Rs.1 crore without any collateral. These business loans are provided to the deserving entrepreneurs who have been showing a very good financial management.

Some banks have specific schemes to fund start-ups. The start-up promoter must prepare a pitch explaining the business model, background of the promoters involved and the revenue model, estimated sales and profit, estimated growth and returns. Then the promoter must identify the potential banks and approach them and structure their request in a way that fits the RBI’s framework and its lending policy. And then they must approach the bank or the financial institution and pitch their idea of start-up. It helps if you are approaching a bank that you have been doing business with for years as they will be willing to hear your idea out completely.

Following are the benefits of taking a loan for your start up business:

-      The venture capital fund is costly and the banks don’t require equity dilution and the rate of return on their investment.

-      Banks are easier to approach.

-      There is an established framework available for funding evaluation.

-      The banks don’t take part of the profits or losses of the business, they completely belong to you.

-      You can get a loan without a collateral.

-      You can get a loan for stocking inventory.

-      Loan is provided for research and development and for buying equipment or machinery or for expanding the business.

-      The banks allow you to take an asset based loan and the loan amount provided will be based on the market value of the asset.

If you have a good business idea and the only thing stopping you from going ahead with it is the finances, then don’t worry, there are a lot of banks and financial institutions to help you out with that regard to help you be your own boss and to help the economy by creating new job opportunities.