Securing a Bank Loan for Your Startup: A Comprehensive Guide
Synopsis:
The Indian government offers numerous loan schemes for startups. This article will guide you through the process of securing a bank loan for your business under these schemes.
The key to securing a bank loan lies in convincing the loan authorization manager or chief manager of your eligibility and potential. Here are the essential factors they consider:
- A clear business plan
- Business track record
- Credit score
- Revenue potential
- Quality of cash cycle
As an entrepreneur, you need to demonstrate certain qualities to convince the manager of your potential. These include:
- Leadership
- Creativity
- Risk-taking
- Determination
- Adaptability
- Vision
- Strong work ethic
- Effective communication
- Resilience
- Time management
These ten qualities should be evident in your presentation. Before your presentation, prepare your financial plan document with your auditor. The auditor’s document will be accepted as legal, while your presentation aims to build trust with the manager.
Let’s consider an example of how you can convince the manager to start a tissue paper making business.
The Manager might have several questions in mind. Here’s how you can address them:
How Will You Market the Product?
Before starting the business, accurate data might not be available, but you can present your plan and progress. For instance, if you’re starting a tissue paper making business in Mumbai, divide Mumbai into zones and target the big cities in each zone. Tissue papers are primarily used in restaurants, bakeries, cafes, catering services, etc. Based on your business analytical data, you can target a certain percentage of these businesses in each city.
This approach demonstrates your vision, determination, and resilience.
How Will You Face the Competition?
After presenting your market analysis and penetration plan, show how you plan to face the competition. You could target businesses served by traders, focusing on areas outside the big city where the competition might be less.
This shows your adaptability.
How Will You Differ From Existing Manufacturers?
You could differentiate yourself by purchasing a tissue paper making machine with a unique 1/8 fold feature, which is new to the market. This not only sets you apart from existing manufacturers but also helps in your marketing campaign.
This demonstrates your risk-taking ability and creativity.
How Will You Repay the Loan? What Will Your Profit Be?
Present your financial plan here. If you’re targeting a profit of 20%, you need to generate a revenue of INR 5 lakhs per month. If your tissue paper product unit price is INR 25.00, then you need to sell only 20000 Units per month, which is only 50% of your production. However, mention that all these will happen after six months of starting the business.
This shows your strong work ethic.
Finally, Conclude the Presentation With Financial Ratios:
- Liquidity ratio
- Leverage ratio
- Efficiency ratio
- Profitability ratio
- Market value ratio
If you’re planning to start a business under a business loan and require a business presentation, feel free to contact us.
List of Government Schemes for Business Loan
Government Business Loans: MSME Loans
The MSME Loan Scheme is designed to fulfil the working capital needs of Micro, Small, and Medium Enterprises (MSMEs). Under this scheme, both new and existing enterprises can avail themselves of loans up to Rs. 1 crore. What makes this scheme even more appealing is that the loan processing time is as short as 59 minutes!
For example, let’s say Ramesh owns a small manufacturing unit and needs funds to purchase raw materials and meet his working capital requirements. Through the MSME Loan Scheme, he can easily apply for a loan of up to Rs. 1 crore at an attractive business loan interest rate of just 8%. Moreover, women entrepreneurs can benefit from a 3% reservation under these government loans for women.
Pradhan Mantri MUDRA Yojana (PMMY)
Pradhan Mantri MUDRA Yojana is a fantastic government loan scheme that primarily caters to women entrepreneurs, service-oriented enterprises, and trading businesses. These government loans for women encourage them to become self-reliant. The scheme offers collateral-free credit options with different loan amounts. Moreover, the business loan interest rate is based on the size of the enterprise.
National Small Industries Corporation
The National Small Industries Corporation (NSIC) offers two beneficial schemes for entrepreneurs looking for financial assistance in technology, marketing, and finance. The Marketing Support Scheme provides various marketing support options such as Consortia schemes and Tender Marketing to help businesses promote their products and expand their market reach.
On the other hand, the Credit Support Scheme assists in procuring raw materials, financing marketing activities, and meeting other financial requirements.
Credit-Linked Capital Subsidy Scheme
The Credit-Linked Capital Subsidy Scheme (CLCSS) is designed to provide financial assistance to businesses for technological advancements in industries such as marketing, manufacturing, and supply chain management. Under this scheme, eligible enterprises receive an upfront capital subsidy of 15%.
SIDBI Loan
The Small Industries Development Bank of India (SIDBI) offers direct loans along with indirect loan schemes through Non-Banking Financial Companies (NBFCs) and Small Finance Banks (SFBs). SIDBI primarily focuses on lending to Micro, Small, and Medium Enterprises (MSMEs) that require funds for their business operations.
For instance, imagine Rajesh wants to expand his small-scale manufacturing unit and needs a loan of Rs. 1 crore. SIDBI can provide him with the required financial support without any collateral requirement. So, if you are scouting for startup business loans from the Indian government, consider above all these schemes.
