India’s startup ecosystem is the third largest in the world. There are ample financing options for startups in India, including traditional loans, alternative financing, and government-backed schemes. Navigating these options can feel overwhelming—most options cater to specific industries, have different maximum loan amounts, and charge varying interest rates.

In this guide, we talk about the best startup loans in India so you can choose one that fits your needs.

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What is a Startup Loan in India?

Startup loans in India, like startup loans in other countries, are financial products designed to provide funding to new businesses or startups. In India, startups generally obtain startup loans via banks, non-banking financial companies (NBFCs), and government-backed schemes. 

These loans differ from a typical business loan because startups are young, high-growth, and often loss-making businesses. This means the loans may not be backed by assets or cash flows.

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Startup Loans In India: Everything You Need to Know

Not everyone is eligible for startup loans in India. Even if you’re eligible, is it worth raising capital via a startup loan? Remember, you need to keep the cost of capital to a minimum to maximize your return on equity and keep shareholders happy. 

Let’s talk about everything you need to know about startup loans in India.

Startup Business Loan Eligibility

Each lender has different eligibility criteria for startup loans, but here are some generic requirements:

• Indian citizen: The applicant must be an Indian citizen.
• Age: The applicant’s age should be more than 21 years and less than 65 years.
• Business plan: The lender will want to understand how you plan to use the borrowed funds.
• Registration: The business must be a registered entity, such as a sole proprietor, partnership firm, limited liability partnership, or private or public company.
• Financial statements: Lenders will assess your financial prospects based on revenue growth, operating profitability, and current capital structure, among other things.

Startup Loan Requirements & Documentation

The requirements and documentation differ based on the lender you’re dealing with, but it’s important to have the following documents handy:

• Identity proof: PAN Card, Passport, Aadhar Card, Voter’s ID, Driving License
• Address proof: Passport, Aadhar Card, Voter’s ID, or Driving License
• Photographs: Passport-size photographs
• Business proof: Incorporation certificate, partnership deed, or any other registration document
• Bank statements: Last six months
• Proof of income: Income tax returns
• Signature proof: Bank-verified signature, PAN Card, Passport
• Banking details: Canceled or scanned check, copy of your bank account passbook’s front page

Interest Rates

The rate of interest depends on your credit score and the lender’s perceived level of risk when lending funds to your company. However, banks typically charge a minimum of 10% in the current market. This may change whenever the repo rate (this is the rate at which the Reserve Bank of India lends money to commercial banks) changes.

This is exactly why you can raise funds at a lower rate from outside India. Countries like the US may have a much lower interest rate, which means lenders in the US can offer funds to Indian startups for a significantly lower interest rate.

There’s no upper ceiling on interest rates, but lenders open to lending to high-risk borrowers may charge rates from 35% and above.

Benefits of Startup Loans in India

Here are the benefits of startup loans:

• Quick access to capital: Venture capital (VC) funding can take months. If you’re looking for quick cash to support growth, a startup loan is an excellent, hassle-free option. The best lenders can disburse funds within 48 hours of approval - although some lenders such as banks can take months.
• Better control: VCs ask for a stake in your company in exchange for capital. This dilutes your stake in your company, which translates to lower control over the company. Startup loans don’t require selling any stake—you will need to pay interest or a flat fee, but you will not lose any of your equity.
• Lower cost of capital: Debt funding is significantly cheaper than raising funds through equity due to the high cost of diluting your company. Indian banks charge upwards of 10% per year on startup loans, but you can lower your interest expense considerably by going to a US-based lender.
• Tax benefits: Interest expense is a business expense for your company. This reduces your taxable income, which means the net cash outflow toward your loan repayment is lower than your amortization schedule shows. For example, if you’re paying 30% income tax and your loan charges 10% per year interest, your after-tax interest expense will be net of loan charges.

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Best Startup Loans In India from Governments & Private Lenders

If you’re currently looking to raise debt capital, here are your best options:

1. Efficient Capital Labs Revenue-Based Financing

Revenue-based financing (RBF) from Efficient Capital Labs tops the list because it offers quick disbursals of up to $1.5 million and attractive rates. ECL’s financing is slightly different from a loan. Instead of charging interest on the outstanding principal each month, ECL’s RBF charges a flat fee. For example, if you borrow $500,000 with a 10% fee and a 12-month term, you pay $45,833 every month [($500,000 + 10% fee) / 12].

ECL offers revenue-based financing up to 65% of a company's projected annual recurring revenue, with transparent, flat fees of 12-15% for INR, or 10-12% for USD. The streamlined application process and quick turnaround times mean Indian startups can access funding in as little as 72 hours. And with a 75% + repeat customer rate, the benefits for startup founders are clear. 

Benefits:

• Quick access to non-dilutive capital
• Financing of up to 65% of your annual recurring revenue
• Up to $1.5 M in financing
• Transparent fixed fee
• No collateral required

Best for: B2B SaaS startups looking for non-dilutive, borderless financing

Access non-dilutive funding for your India startup 

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2. Startup India Seed Fund Scheme

Startup Indian Seed Fund Scheme offers startups initial capital for proof of concept, prototype development, product trials, market entry, and commercialization. The scheme is sector-agnostic—whether you’re building a SaaS or establishing a manufacturing unit, this scheme can offer the funds you need.

Maximum Loan Size: Up to INR 50 lakhs

Fees: No fees

Eligibility Requirements:

• You must be DPIIT-recognized (you can apply if you’re not already recognized).
• Your business must be incorporated no more than two years ago.
• The startup must have a product or service with a market fit, viable commercialization, and scope of scaling.
• The startup’s core product or service, business model, distribution mode, or methodology must use technology to solve the problem being targeted.
• Startups focused on innovative solutions in select industries such as healthcare, education, and biotechnology are given a preference.
• Startup must not have received more than INR 10 lakhs of monetary support under any other Central or State Government scheme, excluding prize money from competitions and grand challenges, subsidized working space, founder monthly allowance, access to labs, or access to prototyping facility.
• Indian promoters should hold at least 51% shares at the time of application to the incubator for the scheme.
• Startups can get support as a grant and debt or convertible debentures as per the scheme’s guidelines.

Payback Period: Up to 5 years

APR: No more than the prevailing repo rate

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3. Pradhan Mantri Mudra Yojana (PMMY) Indian Government Loan Scheme

PMMY was launched in 2015 through MUDRA (Micro Units Development and Refinance Agency). The scheme aims to help manufacturers, traders, and service businesses access collateral-free debt capital up to INR 10 lakhs. Applicants can apply in one of the following three categories:

• Shishu (loans up to INR 50k): This category is for early-stage startups that often haven’t started operations.
• Kishor (loans up to INR 5 lakhs): This category is for startups that are already operational but need additional funds to mobilize their business.
• Tarun (loans up to INR 10 lakhs): Startups and startup owners that meet the required eligibility criteria can apply for loans up to INR 10 lakhs.

Maximum Loan Size: INR 10 lakhs

Fees: SBI charges 0 for Shishu and Kishor and 0.5% + tax for Tarun. Fees vary among banks.

Eligibility Requirements:

• You’re an Indian citizen.
• You belong to the non-farm small/microenterprise segment.
• You belong to the non-corporate small business segment.
• You’re not a defaulter to any bank or financial institution.
• You have the skills, experience, or knowledge required to run the proposed business.
• In some cases, your educational qualification may matter.

Payback Period: 1 to 7 years

APR: Varies among banks, typically 8% to 12%

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4. Udyogini

Udyogini provides subsidized loans to current or aspiring women entrepreneurs in India’s rural and underdeveloped regions. Loans are disbursed through financial institutions like commercial banks, district cooperative banks, and regional rural banks (RRBs). 

Eligible applicants can borrow up to INR 3 lakhs to start a business in one of the approved 88 small-scale industries. Moreover, the government offers up to a 30% subsidy.

Maximum Loan Size: INR 3 lakhs

Fees: Nil

Eligibility Requirements:

• You must be a woman.
• Your age must be between 18 and 55 years.
• Your family income must be less than INR 1.5 lakhs (not applicable for widowed or disabled women).

Payback Period: 3 years (includes a 6-month moratorium period)

APR: 6%

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5. Small Industries Development Bank of India

SIDBI regulates Indian MSMEs (medium and small enterprises) and their licensing. It also lends funds to MSMEs and small-scale industries to support business growth. SIDBI offers multiple funding options for startups, including general-purpose term loans and Priority Assistance to MSMEs Based on Hybrid or Alternative-Security Model (PRATHAM). 

Each product has its own set of requirements. For example, the minimum loan amount for the general-purpose term loan is INR 10 lakhs.

Maximum Loan Size: As needed

Fees: 1% of the sanctioned amount of the general-purpose term loan

Eligibility Requirements:

• The debt-to-equity ratio shouldn’t exceed 3:1.
• Promoter’s minimum contribution should be 33% in case of new projects; a lower contribution of up to 25% may be accepted in case of existing well-performing units.
• The minimum overall asset coverage ratio must be 1.3 units and 1.4 for new entities, including a fixed asset coverage ratio (FACR) of 1.00.

Payback Period: 8 to 10 years (including an 18-month moratorium period)

APR: Information not publicly available 

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6. Credit Guarantee Fund Scheme for Micro and Small Enterprises

The Credit Guarantee Fund Scheme for Micros and Small Enterprises (CGS-I Scheme) was set up to help eligible entrepreneurs obtain funding without collateral from eligible member lending institutions (MLIs). The scheme offers guarantees for loans of up to INR 5 crore. 

The guarantee cover depends on various factors, such as the business’s location and size. The borrower is required to pay an annual fee until the loan is repaid.

Maximum Loan Size: INR 5 crore

Fees: Depends on factors like loan amount and special concessions; maximum fee is 1.35% per annum (fee is charged on the guaranteed amount for the first year and outstanding amount for subsequent years)

Eligibility Requirements:

• New and existing micro and small enterprises engaged in manufacturing or service business (as per the MSMED Act, 2006), excluding agriculture, self-help groups, and similar businesses are eligible.
• The applicant must have a PAN number (except for loans under INR 5 lakhs).
• The applicant must have Udyam registration.

Payback Period: No limit (up to 5 years for working capital loans, but can be extended for another 5 years)

APR: Up to 1.35%

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7. Sustainable Finance Scheme

SIDBI introduced the Sustainable Finance Scheme to lend funds to sustainable development projects focused on energy efficiency and cleaner production that aren’t covered under international or bilateral lines of credit. Beneficiaries of the scheme may include biomass gasifier power plants, mini-hydel power projects, and wind energy generators.

Maximum Loan Size: Up to 1.5 crore

Fees: Decided by the lender

Eligibility Requirements:

• The project must focus on energy efficiency or cleaner production.
• Funding is also available to OEMs that manufacture energy-efficient and cleaner production equipment, provided the manufacturer is an MSME and supplies products to a sufficient number of MSMEs.
• The applicant should have been in operation for at least three years and should have earned cash profits in the last two years.
• The applicant shouldn’t be in default to any bank or financial institution.
• The unit must have undergone a detailed energy audit through a technical agency.
• The unit shouldn’t have received a performance-linked grant under the WB-GEF project for the proposed project.
• The unit must be compliant with the environment and social management framework.

Payback Period: 3 years for loans up to INR 50 lakhs and 5 years for loans above INR 50 lakhs (including a moratorium period of 6 months)

APR: Decided by the lending organization based on the MSME’s credit rating

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8. Coir Udyami Yojana

The Coir Udyami Yojana is a credit-linked subsidy scheme that offers funding to those who want to set up coir units with project costs up to INR 10 lakhs plus one cycle of working capital (which shouldn’t exceed 25% of the project cost). 55% of the project cost can be covered through a bank loan. The government offers a 40% subsidy and the applicant must contribute the remaining 5%.

Maximum Loan Size: Up to INR 10 lakhs + one cycle of working capital (not exceeding 25% of the project cost)

Fees: Varies among lenders

Eligibility Requirements:

• The applicant must be an Indian citizen older than 18 years.
• The scheme is available to individuals, companies, self-help groups, non-governmental organizations, institutions registered under the Societies Registration Act 1860, production co-operative societies, joint liability groups, and charitable trusts.
• Only one person from the family (i.e., yourself and your spouse) can apply for assistance under this scheme.
• The scheme offers assistance only to projects set up to produce coir fiber, yarn, and other products approved under the coir sector.
• Units that have already availed subsidy under any other scheme of the Government of India or the state government for the same purpose are not eligible for subsidy under this scheme.

Payback Period: Up to 7 years

APR: Determined by the bank

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9. Private Sector Startup Loans

Almost every major private sector bank in India offers startup loans. Here are the top banks to consider:

• HDFC: Loans up to INR 50 lakhs with a payback period of up to 4 years
• TATA: Loans up to INR 75 lakhs with a payback period of up to 3 years
• Kotak Mahindra: Loans up to INR 75 lakhs with a payback period of up to 5 years

The interest rate and eligibility criteria for each bank are different. However, you can expect to pay upwards of 15% when borrowing from private sector banks.

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10. ICICI Direct SME/MSME Loan

ICICI offers loans to small and medium enterprises, including software companies, for business expansion, working capital, and purchasing commercial assets and equipment. The loans can be a cash credit or term loan. There’s no minimum loan limit and you can even get collateral-free loans up to INR 2 crore under the CGTMSE scheme.

Maximum Loan Size: Up to INR 50 crore

Fees: Decided by bank based on the business’s financial position and other factors

Eligibility Requirements:

• The business must be registered as a sole proprietorship, partnership, private limited company, or public limited company.
• The age of the borrower must be between 25 and 55 years.
• The borrower must have at least three years of business experience.

Payback Period: Not stated

APR: Determined by the bank

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More About Startup Loans in India

Now that you know the most popular loan products available in India, let’s talk about some other questions you may have about startup loans.

Can you get a startup loan in India without collateral?

Yes, multiple banks and financial institutions offer collateral-free startup loans in India. For example, ECL offers B2B SaaS companies revenue-based financing without collateral and at an attractive interest rate.

How do you get a startup business loan with no money in India?

If you don’t have the initial capital but have a great business idea, consider raising capital through one of the many funding schemes developed by the Indian government. Examples include PPMY and the Credit Guarantee Fund Scheme for Micro and Small Enterprises.

Which bank is best for startup business loans in India?

ECL is your best bet if you’re a B2B SaaS startup looking for revenue-based financing. If you’re looking for a traditional term loan, consider the State Bank of India (SBI). You can apply for one of SBI’s own loan products or one of the various government-backed schemes available with SBI.

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Get Funding For Your Startup in India

There are ample ways to raise startup capital in India. But it’s best to explore your options and find a source of capital that matches your needs. 

If you’re a B2B SaaS startup looking for debt capital to fuel your growth, you can have the money you need in your bank in 10 to 15 days. 

Augment your USD funding from ECL with additional funding in INR to support your INR denominated cash flow needs.

Get in touch with ECL