The retail industry in India has been on a creative turn since the last decade. With the advent of better technology, IoT, P2P networks, coupled with ease of access to the internet have led to various innovations in the segment. Retail Brands like Flipkart and PepperFry - which started off as small startups are now a common word in Indian households. Startups in India are classified as MSME, which is Micro, Small or Medium Enterprise. MSMEs are given a special status by the Startup India program launched, which creates a special MSME Aadhar, discounted memberships, educational seminars and loan facilities, and incubation level platforms where mentorship and sale purchase domains of the government are offered.
Retail start-ups in India are offered a more relaxed interest rate or an easier loan facility despite no security or payment capacity to show. This allows greater risk but a chance to take the idea behind the retail start-up into a success. We see that this has not been too successful for many MSMEs. The fail rate is high. But building an atmosphere of enterprise and not salaried bureaucracy will lead to a long-term impact in the shape of market divisions and, more importantly, the type of people and organized class that is working. The loans can be availed in various ways, such as setting up a meeting at home, going directly to the bank, or even through the website!
Risks associated with initiating start-ups in India
Start-ups, retail or otherwise, always have a risk of failing and bringing losses to all the parties involved. These amounts are large, and thus risks are heavy. To ensure people do not get overburdened by this and are still able to focus on bringing an idea to the market and making a sizeable profit, at least in the long term, is the aim of any and every business. Amazon was once an American start-up selling books on the internet in the 1990s.
In India, there are countless stories of MSMEs and retail startups having succeeded. Still, due to the market's nature and the prevailing economic and political conditions, including Covid-19, more MSMEs are dormant or making losses.
Applying for Start-up Loans in India
Applying for a startup loan in such circumstances requires careful evaluation of what makes up the correct path to success. There are more than 39000 start-ups in India, that is a large number. The traditional retail industry is also flooded. The Small Industries Development Bank of India (SIDBI) thus offers many important and good schemes for such MSME entities and retail startups, these include:
· Bank Credit Facilitation Scheme – Under this, National Small Industries Corporation (NSIC) works at meeting the credit needs of the MSME units. The NSIC has partnered with various banks to provide loans to MSME units. The tenure for the loan repayment ranges from 5 to 11 years.
· Pradhan Mantri Mudra Yojana (PMMY) – Launched in 2015, the scheme offers loans to manufacturing, trading, and service sector activities. The amounts are classified into three categories or tiers – Shishu, Kishor, and Tarun; they vary between 50,000 and 10 lakhs. The loan can be availed by artisans, vegetable vendors, shopkeepers, and others.
· Credit Guarantee Scheme (CGS) – Larger amounts up to 200 Lakhs can be borrowed and but certain types of industry such as the educational sector are excluded.
· Standup India – Providing loans for up to 7 years and from 10 lakhs to 1 crore. This is a scheme by SIDBI.
· Credit Linked Capital Subsidy for Technology Upgrades - The main goal of this scheme is to enable new and existing MSMEs (having a valid UAM Number) upgrade their technology by facilitating them with a capital subsidy of 15% up to Rs. 1 crore.
· SIDBI Make in India Soft Loan Fund for MSMEs (SMILE) - SMILE - SIDBI Make in India Soft Loan Fund - offers loans for new enterprises for manufacturing or services with a minimum loan amount of Rs. 10 lakhs for financing equipment and Rs. 25 lakhs for other reasons. Repayment is 10 years, which includes the moratorium period of 36 months.
· Sustainable Finance Scheme – This scheme is also initiated by SIDBI, offering loans to new start-ups for industries that deal with renewable, sustainable, green, and non-renewable energy. This is to ensure that these start-ups get ample support to provide cleaner production and operational resources to run a sustainable development project.
· Start-Up Business Loans provided by Banks - Different banks provide various loan options – ranging from HDFC’ rate of 15.75% with less than 1% processing fee to Kotak Mahindra’s fully customized packages that provide maximum limits as high as 75 lakhs.
Features of Start-up Loans
One of the sharpest features of this – Start-up loan is that the bank or institution takes no security. However, the MSME comes into purview as the creditor and later the directors. But instant, no security credit is given. This means the route from idea to manifest service or product in the market is short and ready if the plan is calculated and crafted.
There are various other ways to obtain start-up finances for a retail startup or MSME which are:
1. Crowdfunding - which helps the borrower to procure funds through online campaigns.
2. Personal Loans – Although they come with a high-interest rate but are generally easy to procure using a hassle-free disbursal process.
3. Grants – These are not very easy to procure but are quite enterprising for start-ups as they can be approved by a private foundation or a government agency if they like and approve the applicant's business setup plan.
4. Micro Loans from NPOs and NGOs – These loans are for the disadvantaged and minority business leaders of SMEs that are economically struggling.
Benefits of Start-up Loans
To avail funds from different organizations on various grounds for a start-up business in can be beneficial in many ways like:
- Tax relief for 3 years
- Nominal rates of interest and government and private backed schemes to financially support and encourage the new SMEs and start-up businesses in India
- The approachable and convenient process to apply for funds
- Loan requests are processed in no time because of the well-structured outline and framework of loan processing or fund approving process
- The lenders have got nothing to do with the profits, which is entirely entitled to the entrepreneur. All they are concerned with is the principal amount offered to the applicants as a start-up loan and the interest payment, which depends on the kind of loan disbursed for them.
Key Points to remember when applying for a loan
When applying for a loan, for a retail startup or any other startup, there are certain key points to note in the process of loan application and processing.
- Always make the loan application clear and crisp and avoid adding unnecessary details to the application.
- Write clearly how you intend to use the loan amount in your business plan.
- Summarize the business goals and plans along with the chart that will highlight the potential returns and growth of the venture
- A clear approximation of the fund must be given.
Eligibility Criteria for Startup Business Loan
Certain general criteria must be adhered to sanction the business loan, and thus, the loan seeker must qualify them.
- Age of the loan seeker must be more than 21 years of age and not more than 65
- The applicant must be a citizen of India.
- The applicant must have a business plan.
These are the general eligibility criteria; the exact criteria, on the other hand, are to be found at the time of applying and will vary from person to person and cannot be foreseen without knowing the terms and conditions and scheme, and also the loan sanctioning financial institution.
Seeing the current market trends where banks are in difficulty offering personal loans too, and while markets are rising, any industry's real valuation is difficult due to political and geographical polarization of the world along ideological lines. To work in such an environment is a respectable challenge that can give long term returns if there are enough experience and analysis. Also, risk appetite. To take a loan and jump the bridge is opportune now; one must be sure one does it in good spirits, always. The last decade has seen e-commerce increase by many folds in india. The retail industry now operates at better price efficiencies and superior supply chain capabilities. With the right strategies, a retail startup can fetch a decent startup loan and set its foot in the industry.