A Comprehensive Guide to Business Loans for Women

December 26, 2023
business loan for women

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Empowerment, for Indian women, is an uphill task. Essentially seen as homemakers, they are expected to strike the perfect work-life balance. They have to give equal priority to their homes and workplaces. Thankfully the Government has come up with many business loan for women, for the overall empowerment of women. There are different schemes for women with low literacy levels as well as educated women in rural and urban areas.

Priyashri Mani and Nishita Vasanth are two women from Bengaluru, who bought organic honey from the honey-harvesting tribe of Palani Hills (Kodaikanal District, Tamilnadu). When they realized they had bought too much, they decided to set up a startup called Hoopoe to process, package, and sell organic honey.

With the help of a women entrepreneur’s loan, they were able to overcome their challenge of logistics and hire more women. Today, they provide a sustainable and non-exploitable means of employment to about six women of the honey-harvesting tribe and sell their products online and offline.

Many stories like this provide the necessary encouragement and motivation to many budding women entrepreneurs with brilliant business ideas. This article provides all the information about business loans for women entrepreneurs. It can work as a stepping stone for many women who wish to achieve business success.

Types of Business Loans Available to Women Entrepreneurs

Many banks, financial institutions, and government agencies provide short-term as well as long-term loans for women to start a business in India. Here are the various types of business loans for women in India:

Small Business Finance

Also known as SME loans, these are small business loans that are offered by many financial institutions. This small business loan for women is largely available for existing small and medium-scale businesses at affordable interest rates. However, some lenders also provide secured and unsecured funding for start-ups. You need to have a good credit score to avail of this loan. You can even choose a Line of Credit (LOC). This option is ideal to fulfil your short-term funding requirements.

Commercial Business Loan

If your needs are higher than what you can borrow through an SME loan, you can apply for a commercial business loan. Ideal for medium-scale enterprises, this loan can be used for expanding your business operations. However, your business has to be at least one year old to avail of this loan.

Loan against Securities

If you have shares, mutual funds, or life insurance policies, you can apply for a Loan against Securities. You will be entitled to a loan up to 60 to 70 percent of the market value of these investments. Since this is a secured loan, the eligibility requirements will be minimal.

Personal Loan

If you are a homemaker wanting to start a new business from home, you can apply for a personal loan without any collateral. Since you need a good credit score and decent monthly income, you can even add your spouse as your co-applicant and increase your chances of getting one. You can use this loan for any purpose.

Government Schemes

These refer to the multiple finance schemes launched by the Government to promote women’s entrepreneurship. These include the Mudra Loan for Women, the MSME Loan for Women, and Mahila Udyam Nidhi Scheme which can help you get a ladies’ business loan at a very low interest rate. Although the eligibility criteria are minimal, the processing time of this loan is a long one.

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Top Business Loan Schemes for Women Entrepreneurs

From Shopclue’s founder Radhika Agarwal to Limeroad’s mastermind Suchi Mukherjee, and Nykaa’s founder Falguni Nayar, each of these women has added to the success of women in entrepreneurship in India. Having recognized the uniqueness that women bring into business ventures, the Government of India has taken some significant steps to provide loans for women to start a business. Here is a list of such schemes:

Mudra Yojana

The Pradhan Mantri Mudra Yojana (PMMY) or the Mudra Loan for Women is a government scheme designed for women entrepreneurs. It helps them stand strong and focus on building a better future. Here you get a credit card called Mudra card that you can use to maintain the cash flow of your business. From Rs.50,000, you can avail of a loan up to INR 10 Lakhs, through this scheme. Available at an affordable interest rate, this loan requires no collateral. However, your business has to be in the non-agricultural, non-corporate, and non-farming sectors. Also, you must hold at least a 50 per cent stake in your company.

TREAD Scheme

The TREAD (Trade-Related Entrepreneurship Assistance Development) scheme is a government scheme where the Government provides 30 per cent assistance for the project, with the rest of it funded by the bank that will appraise your business. Apart from the financial assistance, this scheme also provides the necessary counselling and training for the women to develop the required technical skills. However, you should have experience in developing and handling women-centric economic projects.

Mahila Udyam Nidhi Scheme

Also known as the MUN scheme, this is provided by the SIDBI (Small Industrial Development Bank of India). to encourage women’s entrepreneurship. This loan is made available for the MSMEs (Micro, Small, and Medium Enterprises) at a concessional rate. The project has to be manufacturing, production, or service-related. Your minimum investment should be Rs. 5 lakhs and you should have a minimum stake of 51 per cent in your business, to qualify for this MSME Loan for Women.

Stree Shakthi Package for Women Entrepreneurs

Self-employed professionals such as beauticians, doctors, architects, and chartered accountants can apply for the Stree Shakti Package. You can get a loan up to Rs. 20 lakhs without collateral, provided you have more than a 50 per cent stake in your business.

Bhartiya Mahila Business Bank (BMB) Loan

This refers to the multiple business loans for women offered by the BMB Bank. The interest rates for this business loan for women are decided by the RBI and SBI. You can get up to Rs. 20 crores as a loan under this scheme if you have collateral. If not, you can get a loan of up to Rs. 1 crore at a maximum 7-year repayment period.

Apart from the government scheme, there are also other private schemes such as Bajaj Finance Business Loan that support women entrepreneurs.

How to Apply for a Business Loan for Women?

Here are a few steps that you can follow, to apply for a business loan for women:

Step 1 – Check Eligibility

First thing you need to do when thinking of applying for a loan, is to check the eligibility criteria and see if you fit into them. You should find these on the lender’s website. You may have to enter your details such as your name, email id, mobile number, business type, and the industry of your business, before clicking on the ‘Check Eligibility’ button on the website.

Step 2 – Prepare the Necessary Documents

You will have to submit certain documentation along with your loan application while applying for a business loan. Having them ready will make your task easy. See the section on ‘Documents Required for Business Loan,’ for a list of standardized documents required for loan application.

Step 3 – Submit the Loan Application

Most organizations that provide loans for women for business have enabled online application submission. You can click on ‘Apply Online’ and fill in all your details in the form. Then upload the necessary documentation, and click on ‘Submit.’ If there is no online application, you can physically visit the bank or financial institution and hand over your application, with the necessary documentation.

Documents Required for Business Loan

The set of documents that a lender requires to approve a business loan for women, varies from lender to lender. However, here is a list of standard documents that most loans require:

Your Identity Proof

This document will confirm the basic details you might have entered in the loan application about yourself. The accepted documents for ID proof include a PAN card, Aadhar Card, Driving license, Voter ID, and Passport. You can submit a copy of any of these documents.

Your Address Proof

Valid address proof is a must while applying for a business loan for women. This will inform the lender where to contact you, in case you default. The accepted documents here are your lease agreement, utility bills, and ration card.

Financial Documents of Your Business

You can submit your P&L Statement, copy of ITR returns, and Bank account statements to establish the financial situation of your business. Since most loans for women entrepreneurs are given without any collateral, these documents become crucial for the lender to approve your application. They explain how risky or safe it is for the lender to offer you the business loan that you are asking for.

Proof of Business Ownership

You have to submit your partnership agreement and your business registration document as Business Ownership Proof while applying for a loan for women for business. These documents will confirm if you have more than a 50 percent stake in your business. This is one of the eligibility requirements for loans under various government schemes.

Challenges Faced by Women Entrepreneurs in Getting Business Loans

As per a survey, more than 85 percent of women entrepreneurs faced challenges while availing loans from nationalized banks. Here are a few such challenges you need to overcome, if you want your business loan application to be approved by your lender:

Low Credit Score

Having a good credit score is very important to get your business loan approved at a low-interest rate. It shows how disciplined you are, in paying your monthly loan instalments. A CIBIL score of 750 or higher can make it easy for you to get your loan. Make sure you check your credit score with a reputed credit rating agency before submitting your loan application.

Insufficient Cash Flow

This is one of the reasons that can destroy the confidence your lender has in you. Cashflow establishes your capacity to repay your loans after managing your operating expenses. This is why most lenders will ask you to submit your bank statements and your business financial statements.

Too Many Debts

Having too much debt can cut down your chances of getting a business loan for women. This will give an impression to the lender, that you may not be able to repay the loan within time.

Absence of a Concrete Business Plan

A robust business plan is a must for every lender to approve your loan, especially if your business is a start-up. Even if you are not making much of a profit currently, this document will help the lender approve your loan, by considering the prospects of your business.

Lack of Collateral

Most business loans that are given to women entrepreneurs do not require collateral. However, if you need a huge amount you will have to provide collateral. Also, having collateral can give you a better chance to qualify for the loan, at a lower rate of interest, since the risk would be low.

Also Read: Emerging Career Fields for Women in 2023

Take Away

Business loans for women can be a great way to boost women’s entrepreneurship in India. It can help them overcome the challenges that they face and motivate them to achieve business success.

Understanding the various loan schemes made available by the Government for women entrepreneurs, is the first step, you need to take, towards building a strong business. Gender bias in society might make it tougher to overcome your competitors. But with a business loan, you can enjoy that competitive edge for a long time to come.

Innovative, low-investment ideas for the hidden entrepreneur in you! Explore our guide on Business Ideas.

Frequently Answered Questions (FAQs)

How can a woman get a loan from the government, to start a business?

The government of India has started providing loans to women under various schemes, to promote entrepreneurship. You can apply for any of these loans on the official websites of these organizations.

Can a woman get a loan without a job?

Having a job will put you in a better position to apply for a loan. However, you can still get a loan if you don’t have a job, provided you offer some collateral against your loan.

Can a housewife apply for a business loan?

Yes, a housewife can apply for a loan, if she wants to start a business from home. You can apply for a personal loan and include your spouse as the co-applicant. Else, you can apply for a business loan under any of the government schemes and provide some collateral.

Which bank is best for women entrepreneurs?

The interest rates at which banks provide business loans for women entrepreneurs differ from one bank to the other. A comparative study of banks providing business loans for women will help you understand which one is the best.

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