Get A Business Loan For Your Startup - Business Loan Blog - Tata Capital

How to Get a Business Loan for Your Startup

Mar 06, 2017

Most entrepreneurs find it tough to secure funds. Startups may fund their ventures through angel investors or bank finance. Before making a decision, entrepreneurs must understand the advantages and disadvantages of both these options.

One major benefit of availing bank funding is that startups do not need to give up equity in their business. Moreover, angel investors require higher returns, which may result in the entrepreneurs having to part with more equity in their business.

Here is how to prepare your pitch while approaching banks for business loan finance:

  1. Develop a Plan
    Preparing a plan, explaining the revenue and business model, promoters' backgrounds, estimated sales and profitability, and expected returns is recommended. The return on investment is a key metric used by institutions while deciding on whether to fund the business or not. Therefore, it is important for entrepreneurs to familiarize themselves with key information to answer any query raised by the institutions.
  2. Identify the Banks
    After preparing the pitch in a presentable format, the entrepreneurs must identify the institutions that offer startup business loans. Promoters are advised to structure their requests in a framework that is approvable by the Reserve Bank of India and the lending institution.
  3. Know the Types of Loans Available
    Banks offer different types of loans to startups. Additionally, financial institutions may offer specific schemes for startup funding. Studying the different types of loans and schemes offered by each bank before approaching it is important to avoid rejection.

Here are a few benefits of availing startup funding from financial institutions:

  1. Cost Efficient
    Unlike angel investors and venture capitalists, financial institutions do not require an equity stake in the business. Furthermore, the institutions provide funding at a pre-determined rate of interest whereas equity investors expect huge returns on their investments.
  2. Easier to Avail
    Financial institutions have a wider presence in various parts of the country, which makes these easier to access. On the other hand, approaching venture capitalists and angel investors is tougher.
  3. Structured Framework
    Institutional funding is structured with an established evaluation framework. Moreover, the entire evaluation and approval process is completed much faster than availing money from equity partners.
  4. No Share in the Business
    After servicing the loan interest and principal repayment, the promoters are able to retain the entire profits of their businesses. However, if funding is availed from an equity investor, the promoters would need to share the agreed profit proportion with them.

Approval is quick and depends on certain factors, such as management experience, robust business model, experience and expertise, and estimated profits from operations. Entrepreneurs are recommended to approach institutions to avail affordable and structured funding to grow their businesses.