MAM
Are we ready for vocal for local?
NEW DELHI: As the country transitioned into the fourth phase of Covid2019 lockdown, prime minister Narendra Modi in his effervescently charming manner stood on the national podium asking citizens to go “Vocal for Local” for building an “Aatmnirbhar Bharat” (self-reliant India), on 12 May. He also announced a stimulus package of Rs 20 lakh crores for the economy to realise this aspiration.
Following his address, union minister of finance Nirmala Sitharaman spelt out a list of reforms and reliefs, utilising the huge stimulus package, including a change in the definition of MSMEs, the introduction of collateral-free loans for the sector, injection of liquidity in DISCOMs, and liquidity support for farmers.
As expected, social media was abuzz with posts supporting the call for using local products, some also sharing a detailed list of global vs ‘swadeshi’ FMCG products.
Praising this move of the government, chartered accountant and AnBac Advisors founder Anuj Bali told Indiantelevision.com, “This is a great initiative taken by the Indian government as it is going to help us in building a stronger economy and also positively balance our imports with exports.”
He added that the way the prime minister has approached the public with the idea is also a great stimulator. “He has presented it like he had come up with the Swacch Bharat Abhiyan, motivating people to start living the movement.”
However, while the idea of going local and creating a self-reliant India has appealed greatly to the masses and industrialists, there are some structural issues, which the governments will have to address.
DigitalKites SVP Amil Lall says, “Going local helps any economy to grow but first we need to check if we are ready for it. For example, if we talk of mobile manufacturers or automobile manufacturers in India, we will still have to import the spare parts, as such facilities are far from realisation here. Brands like Lava, while being Indian, have their research and development departments based in China.”
Bali shared similar views as he said, “Yes, the government needs to intervene at core levels, apart from introducing financial stimulus. There are a lot of bureaucratic issues as well when it comes to acquiring land for businesses and setting up factories, which needs to be addressed.
He added, “We also need some intervention in the education sector to develop research appetite in our students.”
Economic experts noted that it is not very feasible to achieve this target of going completely local, given the current status of India.
Retired professor Satish K Jain, who has served institutions like JNU, shared, “It is a good idea but I think we are not really prepared it (using only local brands). You need to have proper infrastructure, rules and regulations should be easy, bureaucracy should be efficient, and there should be enough local expertise in place, all of which is lacking right now. Our infrastructure also is not developed to achieve this.”
TERI School of Advanced Studies vice-chancellor (Actg) Manipadma Datta said, “India is facing a demand-side crisis right now, but with this, we are making it look like a supply-side challenge. Even before the lockdown, we saw how automobile manufacturers were struggling as there was no demand. In addition to this, our manufacturing index and agricultural index has been falling rapidly.”
He added that another problem facing the Indian business sector right now is the unorganised labour class, which comprises 24 per cent of the workforce. “They have had a very traumatic experience because of Covid2019 and it will take time for them to get over it.”
Both Datta and Bali noted that the economy will grow only when all people have money in their hands and the government needs to address the liquidity issues for the consumers as well.
All of them agreed that a rework on labour laws, already in process, simplification of bureaucratic processes, and investment in research & development facilities are needed to achieve this goal, and that seems like an extension of ‘Make In India’ mission.
However, Datta left us with a question around how feasible and sensible is it to make a local economy in a highly globalised world. “Look at Singapore. That is a very small nation, doesn’t have enough land to put factories and relies on international facilities. Yet, it is one of the most advanced regions, not just in Asia, but globally. So, why do we really need a local approach to be self-reliant?”
Starting a business is one of the most financially demanding transitions a person can make. In the early months, expenses are immediate and often unpredictable, while revenue streams may take time to stabilise. For first-time entrepreneurs, securing small business loans can feel like a paradox: lenders expect a clean financial track-record before approving a loan, but the business cannot establish that track record without funding. Understanding the start-up lending environment in India and knowing the realistic funding options make this process far less daunting, allowing entrepreneurs to plan strategically.
Why Traditional Business Loans Are Harder for Start-ups
Most financial institutions require a minimum business vintage of 2 to 3 years before approving a term loan. This is because the first two years of operations carry the highest risk of failure. For start-ups less than 12 months old, traditional loan options are limited, and lenders often ask for substantial collateral to mitigate risk.
The vintage requirement is not arbitrary. Businesses that have survived their first two operating cycles demonstrate market viability, which significantly lowers the lender’s risk. Until this milestone is reached, entrepreneurs often rely on bootstrapping, personal savings, or alternative financing to build a stable business foundation. Understanding this reality helps first-time entrepreneurs set practical expectations when seeking funding.
Government-Linked Schemes for Startups
India offers several government-backed schemes to support first-time entrepreneurs. One such scheme is the Pradhan Mantri Mudra Yojana (PMMY), which provides collateral-free loans for micro and small enterprises in three categories:
● Shishu: up to Rs. 50,000
● Kishore: Rs. 50,000 to Rs. 5 lakh
● Tarun: Rs. 5 lakh to Rs. 10 lakh
These loans are available through eligible lending institutions, making them suitable for early-stage businesses. For first-time entrepreneurs, a Mudra loan not only provides initial working capital but also helps establish a credit history. Repaying a Mudra loan on time strengthens the entrepreneur’s profile and increases the chances of securing larger loans in the future.
Using Personal Loans to Fund Early-Stage Needs
When business loan eligibility is not yet established, a personal loan can serve as bridge funding. These loans are assessed on the individual’s credit profile and income rather than the business’s financial history, making them accessible to salaried individuals or those with a strong personal credit record.
Personal loans have limitations: the loan amount is capped based on personal income, and the interest rate is typically higher than secured business loans. Nevertheless, taking out a personal loan during the first 12 to 18 months can provide crucial support as the start-up builds its financial profile. It is especially useful for covering immediate expenses such as inventory, marketing, or office setup costs.
Alternative Financing Options for Startups
For start-ups that are not yet eligible for traditional business loans, other financing options are available through financial institutions. Many lenders offer startup-focused or small-business loans designed for early-stage businesses. These loans evaluate the entrepreneur’s personal credit profile, business plan, and projected revenue rather than relying solely on business vintage. Financial institutions such as Tata Capital provide these loans with minimal documentation and fast disbursal, enabling entrepreneurs to manage operational expenses, purchase equipment, or fund early growth initiatives without pledging collateral.
Some lenders also offer flexible loan amounts, quicker approvals, and streamlined processes, making them well-suited for first-time entrepreneurs. Exploring these options early allows start-ups to access working capital while gradually building a credit history that will support larger loans in the future.
Building the Right Financial Profile Before Applying
For entrepreneurs planning to apply for a business loan in 12 to 18 months, the preparation period is critical. Key steps include:
● Filing Income Tax Returns (ITRs) consistently and accurately from the first year
● Maintaining a clean current account with regular deposits and no overdraft patterns
● Keeping the promoter’s CIBIL score above 750
Lenders assess start-ups by examining these signals. Entrepreneurs who maintain financial discipline from the start will have stronger loan applications after two years. Additionally, tracking cash flow and avoiding irregular withdrawals can further enhance the business’s credibility.
Collateral-Based Options for Larger Requirements
Startups requiring larger amounts beyond government schemes can consider loans against property. These loans allow entrepreneurs to access larger amounts of funding at lower interest rates, as the property secures the lender’s risk.
This option carries significant risk: using personal or family assets as collateral can result in a loss if the business does not perform as expected. Such loans should be considered only when the business plan is validated, the entrepreneur has clear cash flow projections, and the repayment strategy is realistic. Careful assessment of risk versus reward is essential before pledging assets.
Practical Steps to Strengthen Your Loan Application
To maximise the chances of approval, entrepreneurs should:
● Maintain accurate financial statements, bank records, and GST returns.
● Avoid over-borrowing; apply for realistic amounts that match business needs.
● Keep personal and business credit profiles in good standing.
● Explore lenders that offer startup-friendly products.
● Be transparent and complete in all documentation.
Taking these steps early ensures a smoother and faster loan process when the business is ready for formal financing. A well-prepared application reduces processing delays and demonstrates professionalism to the lender.
Conclusion
First-time entrepreneurs often face a funding gap in the early stages, but it is usually smaller than it appears. Maintaining clean banking records, filing ITRs consistently, and exploring personal loans, government schemes, and alternative financing options help build a strong financial profile. Entrepreneurs who plan systematically from day one are better positioned to access formal credit sooner, giving their start-ups financial stability through small business loans.
The ideal time to start building a credit-worthy business profile is the very first month of operations, not when applying for a loan. By understanding available funding options and acting proactively, first-time entrepreneurs can confidently apply for a business loan and set their businesses on a path to long-term growth.
