A person who wishes to start a business needs a certain amount of capital to embark on the entrepreneurial journey. It is through the use of these funds that a person can start the business and run its operations in the initial years.
Now, a startup is a much more risky venture than a traditional setup business as it aims to disrupt a particular sector in some form or another. Based on these factors, the company should look after loans that are collateral-free. This will not put any other assets under the loan terms and will give space for the business to breathe.
Summary of Personal Loan For Startup
Now, a startup needs a loan, which will be anywhere between 50,000 and 15,00,000 INR. A loan is an essential tool through which one can focus on execution from the ideation phase. Now, when a person is building a business with the help of a personal loan, then in that scenario, the interest rate is a little lower, and that helps a company flourish and sustain its cash flow for a funding winter.
It is the role of the startup to understand the need for the fund, and through that, they can decide how much initial capital the startup needs to set up the business and start the operation. Here, a personal loan agent can do the calculation for a startup and help them fix a particular number that they want to raise from the lending institution.
Personal Loan and Interest Rate For Startup
When a person is taking a personal loan, then two to three things one needs to keep in mind as it will help them to choose the most cost-effective option that will be beneficial for the startup.
Now, the interest rate is the primary factor that determines how much a company or a person needs to make the monthly payment and within which date they can pay the amount. Here, a person also needs to know about the penalty charges rate and check which institution offers the lowest. A loan has a processing fee, which is required during the repayment of the loan, and foreclosure charges, which can be added to the remaining amount.
How A Startup Can Become Eligible For a Loan
Now, a startup loan has eligibility criteria that the lending institution will choose based on its disbursement criteria. By knowing the eligibility criteria, a person can get the loan hassle-free and can understand whether or not they will get the loan sanctioned from a particular institution.
In general, people with a credit score of more than 650 are most of the time eligible for all kinds of collateral-free loan options. It is through the right way of expenditure and timely repayment that one can actually take benefit of these criteria and can get better terms for themselves.
Documentation Process of the Loan
The documentation process is something that one needs to be careful about since the institution will verify all the details that you stated earlier. Here, any discrepancies in the documents can terminate the loan terms, and through that, they will be denied the loan.
The person who is taking the personal loan needs to have the income statement ready, and the PAN details must match the other credentials of the person. Address proof is also important in getting the loan approved.
Types of Loans a Startup Can Take
- Term Loan
It is a collateral-free loan that needs to be returned at an interval of 5 years. The best part of a term loan is that it doesn’t require any monthly payment where the person is paying part of the capital. Here, the borrower pays the principal amount in total after the end of the loan tenure.
- Letter of Credit
It’s a credit that provides financial assurance to the receiver and claims that once the trade is settled, that person can get the money from the lender. It helps a person buy raw materials, which will be settled on behalf of the lending institution.
- Working Capital Loan
It’s a short-term loan provided to meet a business’s working capital requirement. The loan has a shorter time frame and helps a business to meet its daily needs.
These are the benefits that a personal loan can provide to a person who is endeavoring on an entrepreneurial path and expecting to turn a venture big and successful.