Essential Guide to Startup Loans in India

By Athena Rebello


Updated on: Apr 8th, 2024


12 min read

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India has firmly establishe­d itself as the world's third biggest hub for startups, marking the creation of 1300 new ventures in 2022, according to a Nasscom report. Despite this impressive growth, startups encounter challenges in effectively managing working capital during their initial stages, primarily due to constrained resources. To address this issue, many startups find it beneficial to apply for startup loans. 

In this article, let’s explore what startup loans are, look at the pros and cons and discover the steps for a seamless startup loan application process in India. 

What are Startup Loans in India?

Startup loans in India offe­r funding support for emerging businesses, aiding them in managing their financial ne­eds. It lets startups raise prompt funds from banks and Non-Banking Financial Companies (NBFCs) to tackle­ working capital demands and acquire equipme­nt. Moreover, business loans can support promotional e­xpenses and foster growth. Be­fore dispersing the funds, le­nders assess the financial stability and past transactions of the­ applicant.

Pros and Cons of Startup Loans

Let's e­xamine the pros and cons of startup loans to assist you in de­termining if they are the­ right choice for your company:


  • Startup loans offer a straightforward application process, simplifying the financial support acquisition for businesses. 
  • They are typically sanctioned based on the business plan and future projections rather than historical financial statements. 
  • Upon approval, funds are promptly credited within a short span of time, ensuring a quick infusion of capital. 
  • These loans often come with transparent terms and conditions, eliminating hidden costs. 
  • They provide startup owners with higher autonomy, as there is no requirement to invest personal wealth directly into the business.


  • Navigating the eligibility criteria can be challenging for certain startups, adding a layer of complexity to the loan application process. 
  • High monthly EMIs may pose a strain on operational finances, impacting day-to-day business functions. 
  • Despite the absence of collateral requirements, some lenders may request a personal guarantee, introducing an element of risk for business owners.

Startup Loans vs Commercial Loans 

Both startup loans and commercial loans are meant to provide financial assistance to businesses. However, there are certain differences that are detailed below: 

 Startup LoansCommercial Loans
Who offers them?Offered by entities such as banks, online lenders, and nonprofits. They may be specifically marketed as startup loans or simply as small business loans.Provided by traditional banks, NBFCs, and online lenders catering to a broader spectrum of businesses.
Time in business requirementGenerally, startup loans often come with a minimal business tenure prerequisite, occasionally ranging from 0 to 6 months.Commercial business loans usually demand a longer track record, typically requiring at least two years of operational history.
Personal credit score requirementStartup loans may accept a minimum personal credit score as low as 500 to 560 for certain products, allowing individuals with varied credit histories to apply.Commercial business loans generally require a higher minimum personal credit score, often set at 600 or higher for most loan products.
Loan amountsStartup loans typically have capped amounts, aligning with the relatively modest funding needs of newer businesses.Commercial business loans offer higher potential loan amounts to accommodate a broader range of business sizes and requirements.
Interest ratesStartup loans may carry slightly higher interest rates, reflecting the perceived risk associated with newer businesses in the market.Commercial business loans generally feature lower interest rates, given the longer operational history and lower perceived risk associated with established businesses.
Collateral requiredTypically, it is not a requirement, but it may require a personal guarantee by the founder.Varies from lender to lender. 

Eligibility Conditions to Get Startup Loans

If you live in India and are­ aged between 18 and 65, you stand a chance­ to get a startup loan. The vital documents are­ proof of address and a convincing business plan. It should detail how you will run your business, how you'll expand, and show you're good with your money. It's a must to have your business properly registere­d under the relevant regulatory laws in force. This helps lenders see that you are trustworthy.

Process of Getting Startup Loans

The process of getting startup loans is similar to getting any other loan. You simply have to submit an application along with the necessary documents. After verifying the documents and checking your credit score, the loan amount gets approved. Here, the key is improving your personal credit and managing your debts well for quick approval. 

Best Alternatives for Startup Loans

When it comes to funding your startup, you have various options. Here are some simpler alternatives to consider:


Grants refer to money offered by organisations or government agencies to help startups without the need for repayment. They're like gifts that can support your business without adding debt.


Bootstrapping means funding your startup using your own money or revenue generated by the business. It's like being your own investor and allows you to maintain control without relying on loans or outside investors.


Crowdfunding involves raising small amounts of money from a large number of people through various online platforms. It's a way to gather support from the community and get funds while showcasing your idea.

Angel Investors

Angel investors are individuals who invest their own money into startups in exchange for a share of the company. They often provide not just funds but also mentorship and valuable connections to help your business grow.

Venture Capital

Venture capital firms invest larger amounts of money into startups with high growth potential. They provide funding and expertise to help accelerate your business, but they also take a share of ownership in return.

Business Credit Cards

Business credit cards offer a simple way to finance your startup with a line of credit. They come with perks like rewards and introductory rates, but it's important to use them responsibly to avoid high interest and debt.

Merchant Cash Advances

Merchant cash advances provide quick funding based on your future sales. While they offer fast access to cash, they often come with high fees, so it's essential to understand the terms before opting for this option.

To sum it up, a startup loan proves to be a convenient choice for your immediate business requirements without the need for collateral. Before making a decision, evaluate both the benefits and drawbacks and consider exploring other solutions as well.

Frequently Asked Questions

What are startup loans?

Startup loans provide emerging businesses with funding without requiring collateral. With the­se loans, the criteria is easier to fulfil and the time required for the business to be in operation is less.

How do we improve approval chances for startup loans?

The most effective way is to enhance your personal credit score. Collect necessary documents, such as IDs and business plans, and make sure that your business is accurately registered.

About the Author

A Chartered Accountant by profession and a writer by passion, my expertise extends to creating insightful content on topics such as GST, accounts payable, and invoice discounting.. Read more


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