India is the new Silicon Valley for a variety of startups penetrating diverse industries. With an increase in business innovation and a subsequent rise in the funding options from a plethora of sources, the financial paradigm is only going to get better for businesses in India.
Different types of businesses merit different types of funding requirements. Depending on the type of funds you need to fulfill the financial needs of your business, you may find differences in the kind of loan that you can borrow from lending institutions. This is what marks the distinction between an SME business loan and a Startup loan.
First things first, let us dive into the differences between SMEs and startups.
SME or Small Medium Enterprises
A Small Medium Enterprise business is into manufacturing or servicing. According to the Micro, Small and Medium Enterprise Development Act 2006, a capital asset investment ranges between INR 25 Lakhs and INR 5 Crore for the small enterprises. For the medium-sized enterprises, the same lies between INR 5 Crore to INR 10 Crore. An SME pertains to traditional kinds of small businesses.
According to the Startup India initiative, a startup business has a turnover below INR 25 Crore and has been in existence for less than 7 years since its formal registration. A startup is known particularly for innovation in business and industry through new and disruptive products or enhanced versions of existing products.
SME Business Loans
There has been a recent rise in the SME and MSME businesses in India, propelled by easy access to business loans that are essential for businesses to meet their working capital needs.
Lenders provide loans for SME businesses to help them get established or for financially assisting the expansion of an existing SME business.
It’s important for an existing SME business to display stability and consistent growth in order to avail an SME business loan. The SME business must be able to present tax filing reports for the bank or lender to investigate. While an SME business loan amount can range between INR 1 Lakh to INR 50 Lakhs, the interest rate is defined by the business background and the business plan’s feasibility. For instance, if rural women have come together to set up an SME, the interest rate for the same will be lower than usual.
To be eligible for an SME business loan, the following criterion is essential:
- You must be aged between 26 and 66 years
- Your business vintage should exceed 3 years
- The ITR filing for the business must have been done for at least one year
- Your creditworthiness should be good, with a credit score of 750 at least
- You must have no history of loan default
- Your business must have no history of loan default
Start-up loans can be of varying kinds, from working capital loans to term loans. To get your loan application approved, the business must fall under the eligibility criteria for startups as standardized by the Startup India initiative. Moreover, startup loans can only be availed by businesses with a sufficient display of evident profit margin. Lenders may ask the applicant to provide them with collateral or security in terms of personal guarantee.
What is a Line of Credit for Startups?
Another option for startups is to apply for a line of credit business loan. With a good credit history and a strong CIBIL Score, you can get a great line of credit with the advantage of not being required to pay interest for the first few months. This will give you time to stabilize the finances of the startup business before you start repaying the loan. The interest will be levied only on the loan amount and not on the credit limit. To avail of a line of credit, you have to ensure that you provide the lender with an insightful credit report. Plus, lenders do not ask for collateral when you avail a line of credit business loan.
Among many reasons, financial aid and stability are important to boost your startup. A business loan for startups can take care of that front.
A business loan can prove to be highly beneficial for, both, MSMEs and Start-Ups.
On Finserv MARKETS, you can avail of a startup loan amount as high as INR 30 Lakhs with instant online approval and a quick loan amount disbursal. On the other hand, if you want to expand your SME, you can avail of loan amounts as high as Rs. 30 Lakhs on Finserv MARKETS.
On Finserv MARKETS, you can apply for the business loan best suiting your financial need and witness your business grow manifold. What’s more, you also get the benefit of flexible repayment options, quick online processing, and zero collateral requirements to ensure success for your business, be it a fledgling start-up or an expanding SME.