Last updated 12 Nov 2026
A startup can borrow, but lenders will lean on whatever evidence they can see: the founders' credit history, any security offered, early revenue and bank activity, and a believable plan. Many lenders prefer a business with some months of trading. A founder with no track record is more likely to be offered a small loan, a scheme-backed loan, or an asset-backed loan than a large unsecured one.
This guide is about debt, which you repay with interest and which does not take a share of your company, as opposed to equity from investors. It does not cover venture funding. For the lender's view of a young business, read business loan rejection reasons.
Debt or equity: what is the difference?
Debt and equity compared
| Point | Debt (a loan) | Equity (investors) |
|---|---|---|
| What you give up | Interest and repayment; sometimes security | A share of ownership |
| Repayment | Fixed schedule | None; investors expect a return through growth |
| Control | You keep ownership | Investors may have a say |
| Risk if the business struggles | Repayment continues | Investors share the loss |
| Typically used for | Predictable needs: equipment, stock, working capital | High-risk growth with uncertain cash flow |
If your cash flow is uncertain, a loan puts pressure on every month. If your cost is predictable, such as a machine that will earn from day one, debt can be sensible.
What lenders look at in a young company
- Founders' credit history and existing obligations. For a new business, the owners' personal record carries weight.
- How long the business has operated, and whether it has bank activity.
- Registration: proprietorship, partnership, LLP or company, and Udyam registration where it applies.
- Revenue evidence: invoices, orders, bank credits, GST returns.
- A clear use of funds, with quotations.
- Security or a co-applicant, where the lender asks.
Options for new businesses
Debt options and who they suit
| Option | How it helps | Watch out for |
|---|---|---|
| Startup or new business loan | Lenders with a product for young firms may look at the founders and the plan | Smaller limits; may want security or a co-applicant |
| Unsecured business loan | No collateral | Needs a decent personal credit record and bank activity |
| Equipment or machinery finance | The machine itself is the security | A down payment is usually required |
| Government-backed schemes | Some schemes support new enterprises, such as MUDRA and PMEGP; Stand-Up India was time-limited and a revamped version was announced, so check whether it is open | Terms and availability change; verify on the official site |
| CGTMSE-covered loans | CGTMSE covers lenders on loans to micro and small enterprises without collateral | The lender decides whether to use the cover |
| Invoice discounting | Cash against unpaid invoices once you sell to larger buyers | Needs invoices from creditworthy buyers |
What we verified, and what we did not
The CGTMSE website states that the trust was set up by the Ministry of MSME and SIDBI to encourage lending to micro and small enterprises, that it provides credit guarantee cover to lenders on loans without collateral or a third-party guarantor, and that the ceiling of credit guarantee coverage is ₹10 crore. The lender applies for the cover. We do not quote MUDRA bands or limits; MUDRA, PMEGP and Stand-Up India terms change, so check the official sites or ask the lender. See MUDRA, PMEGP, Stand-Up India, CGTMSE and the startup loan page.
A worked example
A founder starts a small food-processing unit and needs ₹8 lakh: ₹6 lakh for a machine and ₹2 lakh for packaging stock. Six months of bank activity show growing sales. Rather than one large unsecured loan, the founder splits the need: an asset loan for the machine, where the machine is the security, and a smaller working capital line for stock. The lender sees a lower risk in each piece. The founder also prepares quotations, a monthly cash-flow sheet and a clean credit report. The split is illustrative; not every lender will structure it this way.
How to prepare
- Check your personal credit report (CIBIL or another bureau) and fix errors. Checking your own score does not lower it.
- Route business income through one business bank account from day one.
- File GST and income tax returns on time, even if the amounts are small.
- Prepare a one-page plan: what you sell, to whom, what it costs, and when cash comes in.
- Get quotations for what you will buy.
- Keep personal and business spending apart.
Mistakes to avoid
- Borrowing more than the business can repay from its own cash flow.
- Using a short loan for a long-term asset.
- Applying to many lenders in a short time. Too many lender checks in a short time can lower your score.
- Paying any person to arrange a loan for a fee. Genuine loans are paid into your own account by the lender.
LOANZ 360 is a loan aggregator, not a lender. It compares your details with each partner lender's published criteria before you apply, prepares an internal credit assessment summary, and one advisor follows your file. See the eligibility check and the enquiry form.
Frequently asked questions
Can a startup get a loan without any revenue?
It is harder. Lenders usually want some evidence of income, a strong personal record, security or a co-applicant. Asset-backed loans and scheme-backed loans may suit a business that has not yet earned.
Do I need a registered company to get a business loan?
Not always. Proprietorships and partnerships can borrow. Lenders do ask for proof of the business, such as GST or Udyam registration where applicable, and the owners' KYC.
Does my personal credit score matter for a startup loan?
Yes, strongly. With little business history, the lender relies on the founders' record. Fix overdue amounts and errors before applying.
Is CGTMSE a loan I can apply for?
No. CGTMSE provides credit guarantee cover to lenders on loans to micro and small enterprises without collateral. You apply to the lender for a loan, and the lender decides whether to use the cover.
Should I choose debt or equity?
If you have predictable needs and cash flow to repay, debt keeps ownership. If outcomes are uncertain and growth depends on bets that may not pay, equity can share the risk. Many businesses use both at different stages.
Related reading: MSME loan guide, Business loan rejection reasons, Bank or NBFC for a business loan, Working capital loan guide, Machinery loan guide, Startup loan, Business loans, Credit score guide, Eligibility calculator.