Short answer: Most early-stage startups in India borrow through a mix of government-backed schemes (Mudra loans up to ₹20 lakh, CGTMSE-covered MSME loans up to ₹10 crore, and the Credit Guarantee Scheme for Startups up to ₹20 crore per borrower) and the founders’ own credit. Lenders still want to see revenue, cash flow or collateral, so pre-revenue startups usually rely on equity, grants or founders’ personal borrowing first. Get Udyam registration and, if eligible, DPIIT recognition before you apply.
Last updated: 13 October 2026.
Why startup loans are harder than ordinary business loans
A bank lends against the ability to repay. A business with two years of filed returns and steady bank credits is easy to assess; a six-month-old startup is not. That is why lenders lean on three things for young companies: government guarantees that cover part of the lender’s loss, collateral or personal guarantees from founders, and visible cash flows such as GST returns, invoices and a current account with regular credits. For a broader view of lending to small firms, see our business loans hub and types of business loans.
Main loan routes for startups in 2026
| Route | Typical size | Who it suits | Key condition |
|---|---|---|---|
| Mudra (PMMY): Shishu, Kishore, Tarun, Tarun Plus | Up to ₹20 lakh (Tarun Plus above ₹10 lakh is for those who repaid a Tarun loan) | Micro, non-farm businesses, including new ones | Collateral-free; guarantee via CGFMU |
| CGTMSE-covered MSME loan | Up to ₹10 crore guarantee ceiling | Micro and small enterprises with Udyam registration | Collateral-free; lender pays a guarantee fee, often passed on |
| Credit Guarantee Scheme for Startups (CGSS) | Up to ₹20 crore guarantee per borrower | DPIIT-recognised startups not in default | Through banks, eligible NBFCs and SEBI-registered AIFs |
| Stand-Up India | ₹10 lakh to ₹1 crore | SC/ST and women entrepreneurs, greenfield units | Composite loan for a new enterprise |
| Working capital: overdraft, invoice discounting, TReDS | Linked to receivables or turnover | Startups already selling to larger buyers | Needs invoices or a track record |
| Founders’ personal loans or loans against assets | Based on the founder’s income and score | Pre-revenue stage | Personal liability; use with care |
Scheme details change often, so check the current terms with the lender before you apply. Our government loan schemes guide covers Mudra, PMEGP, Stand-Up India, PM SVANidhi and CGTMSE in depth.
Recognition and registrations that matter
- Udyam registration is free on the official Udyam portal. From 1 April 2025 a micro enterprise is one with investment up to ₹2.5 crore and turnover up to ₹10 crore; small goes up to ₹25 crore and ₹100 crore.
- DPIIT startup recognition is needed for CGSS and some tax benefits. Per the Startup India recognition page, the entity must be a private limited company, LLP, partnership firm or cooperative society, generally up to 10 years old with turnover up to ₹200 crore (longer and higher limits for deep-tech).
- GST registration and a current account give lenders the data they use to judge cash flow.
Lenders will ask for KYC, incorporation documents, bank statements, GST returns, ITRs (if any) and a short business plan. Our business loan documents checklist lists them in one place.
The Credit Guarantee Scheme for Startups, briefly
Under the revised CGSS, the maximum guarantee per eligible borrower is ₹20 crore (up from ₹10 crore). For transaction-based guarantees, coverage is 85% of the amount in default for loans up to ₹10 crore and 75% above that. The guarantee protects the lender, not you: you still owe the full loan, and a default is reported to credit bureaus.
Worked example: matching a loan to the stage
Illustrative example. A two-founder D2C food brand, 14 months old, sells ₹6 lakh a month and needs ₹15 lakh for packaging machinery and ₹8 lakh of working capital.
- Machinery: a Mudra Tarun loan (up to ₹10 lakh) plus a CGTMSE-covered term loan for the balance, or a single CGTMSE-covered loan of ₹15 lakh. At 12% over 48 months, ₹4,00,000 costs about ₹10,534 a month, so ₹15 lakh would be roughly ₹39,500 a month.
- Working capital: a cash-credit or overdraft limit linked to sales, or discounting invoices raised on large retail buyers through TReDS (see our bill discounting and TReDS guide).
- Test: total new EMIs of about ₹40,000 against monthly gross margin. If margin is ₹1.5 lakh and fixed costs ₹90,000, there is ₹60,000 left; the loan is serviceable but tight. A longer tenure or smaller first tranche is safer.
Use our EMI calculator to test different amounts and tenures before you talk to a lender.
Need working capital or a term loan for your business? Compare offers from RBI-regulated lenders.
Short-term needs and common mistakes
For gaps of a few weeks to a few months, a short-term business loan or overdraft is usually better than stretching a long loan. Avoid these mistakes:
- Funding long-term losses with short-term, high-rate credit.
- Mixing personal and business money, which makes the business look weaker on paper.
- Applying to many lenders at once; each hard enquiry is recorded on the founders’ reports. Keep your credit score clean, because lenders check promoters’ scores for young firms.
- Signing a personal guarantee without understanding that it makes you personally liable.
- Paying ‘agents’ who promise scheme approval. Scheme loans are applied for through banks or official portals; check NBFCs on RBI’s Sachet portal.
If a bank has already turned you down, read why banks reject business loan applications before reapplying.
Frequently asked questions
Can a startup with no revenue get a bank loan?
It is difficult. Most lenders want some revenue or collateral. Pre-revenue founders typically use equity, government grants such as the Startup India Seed Fund Scheme through incubators, or personal savings, and borrow once sales begin.
Do I need DPIIT recognition to get a Mudra or CGTMSE loan?
No. Mudra and CGTMSE are for micro and small enterprises generally. DPIIT recognition is needed for the startup-specific CGSS guarantee and some tax benefits.
Is a Mudra loan really collateral-free?
Yes, Mudra loans do not require collateral; they are covered by a government credit guarantee fund. The lender still assesses your business and credit history.
Will the founders’ CIBIL score matter?
Yes. For young companies, lenders check the promoters’ personal credit reports, and a poor history can lead to rejection even if the business looks promising.
How much should a startup borrow?
Borrow only what near-term cash flow can service. A common internal test is to keep total EMIs comfortably below monthly operating surplus, leaving a buffer for slow months.
Sources
- Startup India: Credit Guarantee Scheme for Startups
- Startup India: DPIIT recognition eligibility
- PIB: Mudra loan limit increased to ₹20 lakh (Tarun Plus)
- CGTMSE: guarantee ceiling
- Udyam Registration portal
Disclosure: FundsTiger (Gatimaan Finance Advisors Pvt. Ltd.) is a loan marketplace and lending service provider for RBI-regulated lenders. Aparampaar Finance Pvt. Ltd. (Omozing), one of those lenders, is a related party of FundsTiger. This article is general information, not financial advice. Read your loan agreement and KFS before you decide.