Finding Capital to Startup in India: A Loan bazaar Guide to Smart Business Financing

Finding capital remains one of the most common challenges for startups in India. Many businesses with strong ideas struggle not because there is no market demand, but because funding is unstructured or delayed. In today’s competitive environment, access to the right type of finance at the right stage plays a crucial role in determining whether a startup can sustain operations and grow steadily.

The startup ecosystem in India is developing at an incredible pace with the help of the adoption of technologies, policy changes, and the availability of credit. However, there are still numerous founders that are not sure of what funding alternatives are appropriate to their business model, cash flow cycle, and growth plans. This is a guide on the major startup funding options existing in India and how companies can go about them in a responsible manner.

Indian Qualification of a Startup

In a lending point of view, a startup is a startup type of business, innovation-driven and scaled-up business. Startups in India are usually incorporated as a Private Limited Company, LLP or partnership firm.

Regarding regulatory and financing advantage, the startups may receive the Department of Promotion of Industry and Internal Trade (DPIIT) recognition. DPIIT recognition enhances the lender confidence and access to government supported schemes and tax breaks. A portal referred to as Startup India has official guidelines.

Financial Viability, Tax, and Policy Benefits

Established startups can receive various financial and regulatory advantages that have a direct cash flow impact and loan access. These are income tax exemption of three successive years under Section 80IAC and angel tax exemption under the relevant provisions of the Income Tax Act.

The Income Tax Department of India issues the details regarding tax exemptions and compliance.

In Loan bazaar, we usually recommend startups to do these registrations in advance because when the policy is recognized, the loan applications are made stronger and the confidence of the lender is increased.

Basic Startup Financing in India

Venture capital is no longer the only source of startup funds. Structured credit solutions are now available in banks, NBFCs and government backed institutions in accordance to cash flows and business performance.

Working Capital Financing

Working capital financing helps in the day to day running of the business activities like salaries, technology expenses, stocks, and payment of suppliers. Working capital loans are useful when the startup has delayed receivables or recurring costs, and they do not interfere with its growth.

The flow of formal credit to startups and small businesses by the Reserve Bank of India (RBI) has been maintained over the years by using regulated lending frameworks.

Growth and Expansion Term Loans

Term loans can be used in startups that are planning expansion, upgrading their technology or when entering a new market. These loans attract specific tenures and repayment plans which make them financially easier to plan.

In the opinion of a lender, term loans are the best way to go when dealing with a start up with a stable revenue and predictable cash flows.

Equipment and Machinery Loans

The assets needed by startups in manufacturing, logistics, or infrastructure are often capital-intensive. Machinery loans enable companies to purchase equipment at a rate of spreading costs.

In export-oriented startups, the financing guidelines are facilitated by other institutions such as the EXIM Bank of India.

Credit Support for Startups by the Government

Credit Guarantee Scheme for Startups (CGSS)

CGSS is used to decrease the amount of collateral that is required by lenders. This simplifies access of loans by qualified startups without having to pledge heavy assets. Details of the schemes can be obtained via Start up India.

The Role of SIDBI in Startup Financing

The role of the Small Industries Development Bank of India (SIDBI) in enhancing the access to startup credits by direct lending or fund-of-funds support is important.

We are also keen on following the SIDBI-supported programmes at Loan Bazaar since they go a long way to enhance the availability of loans to startups.

Trade and Invoice-Based Financing Solutions

TReDS Platform

Startups who deliver goods or services to big companies or government purchasers have the ability to enhance the cash flow by paying discounts on invoices on RBI-recognised TReDS.

Through this approach, startups are able to tap into funds without raising their long-term debts.

Export Credit for Startups

Startups with an export oriented nature can use the pre-shipment credit to finance production, and post-shipment credit to finance the difference between shipment and actual realisation of the payment. DGFT issues export finance guidelines.

Advanced and Secured Funding Options

Line of Credit

A line of credit provides flexible borrowing with interests being charged only on the sum put into use. It comes in handy with startup projects whose funding requirements are variable.

Loan Against Property (LAP)

LAP can enable startups to raise funds at relatively lower interest rates and longer durations in case they own residential or commercial property.

NBFC Financing

The approvals and tailored funding options offered by the NBFCs are also usually quicker and tailored specifically to a startup that fails to meet traditional bank requirements. Any NBFCs are regulated by RBI.

Cash Flow and Late Payments

Late payments may have a devastating effect on startup cash flows. Communicating with businesses to increase the payment delays and financial discipline are some of the elements that MSME Samadhaan aims to deliver.

Financially speaking, on time collections are very beneficial in terms of loan credit and ratings.

The View of Startup Financing by Loan Bazaar

At Loan Bazaar, we feel that startup financing needs to help it further grow rather than work against it. Proper selection of the loan structure, tenure, and the funding mix are vital to the long term sustainability. We also assist startups to consider the working capital finance, term and asset-backed funding options depending on actual business requirements.

Final Thoughts

The startup ecosystem in India enjoys an increasing access to formal finance sources that is well supported by regulatory and institutional assistance. Through the empowered financial planning and solid borrowing, startups can establish sustainable and growth-driven businesses.

In case you are looking at the sources of funds, our team at Loan Bazaar assists you in comparing the lenders, knowing the eligibility as well as selecting financing that best matches your stage of growth.