In the context of India’s dynamic business ecosystem, timely access to funds is a defining criterion for businesses to flourish and operate with continuity. Whether you are a startup in need of working capital or an established business planning expansion, selecting the correct type of business loan in India is imperative.
With numerous financing options available—such as term loans, working capital loans, MSME loans, overdrafts, and government-backed schemes—business owners must understand the composition, interest rates, eligibility criteria, and applicability of each loan type.
This guide gives you a step-by-step analysis of the best business loans for companies in India. It reflects on how they might resonate with your financial requirements and business objectives.
Understanding Business Loans in India
Business loans are specifically tailored for funding businesses and can be obtained from banks, NBFCs, and government bodies to cover various business expenses. These can include:
- Working capital requirements
- Acquisition of tools and equipment
- Business expansion
- Inventory and stocking purchases
- Office fit-out or refurbishment
Different loan types have varying advantages depending on the nature of your business, your current stage of growth and what you need the money for.
Top Business Loan Types in India
1. Term Loans
Term loans are also the most popular type of business financing. These are agreed on an amount, paid via regular instalments during an agreed period.
Features:
- (2 Months to 1 Year) or long-term (up to 15 Years).
- Typically backed by collateral, but unsecured variants exist
- Utilized for capital outlay, asset acquisition, or infrastructure projects
Best For: Businesses with a solid business history, good credit, and a clear long-term business goal.
2. Working Capital Loans
Working capital loans are used to cover the cost of operating a business – salaries, office space, bills and raw materials.
Features:
- Low tenure (3–12 months).
- Usually unsecured
- Adaptable use but under observation as to cash flow control
Ideal For: Businesses that see a lighter season, traders, and businesses with seasonal cash flow gaps.
3. MSME Loans (Under Government Schemes)
The Indian Government offers easy loans to Micro, Small, and Medium Enterprises (MSMEs) through schemes such as MUDRA Yojana, CGTMSE, and Stand-Up India.
Features:
- Loans up to Rs 10 lakh without any collateral under MUDRA
- Credit guarantee under CGTMSE
- Subsidised interest rates
- Target under-served segments
Ideal For: It is perfect for start-ups, women entrepreneurs, and small subsistence manufacturing or service entities.
4. Equipment and Machinery Loans
This loan is designed to support businesses in acquiring or upgrading machinery and equipment to enhance their productivity.
Features:
- Secured by the asset being financed
- Depreciation-related tax benefit
- Customised repayment terms
Best for: Manufacturer, construction, and processing companies.
5. Invoice Financing
Invoice discounting, also known as bill discounting, enables businesses to generate funds based on their outstanding invoices. This eliminates wait time for customer payments and delivers immediate liquidity.
Features:
- Short-term finance
- Aids in reducing the working capital cycle
- Minimal documentation
Best For: Manufacturers, suppliers, and service providers that operate on delayed payment terms with their customers, with significant demand for cash flows.
6. Overdraft Facility
An overdraft facility allows business owners to borrow money when their account balance is low, up to an agreed-upon amount.
Features:
- Interest is applicable only on the utilised amount
- Flexible usage and repayment
- Linked to the current account
Best For: Businesses that need ad hoc or infrequent access to funds.
7. Business Credit Card Loans
Many banks now offer business credit cards with lines of credit and flexible balance options. These cards may also offer instant loans, depending on the usage and repayment history.
Features:
- Instant access to funds
- Cashback and reward points
- Online control over expenses
Best For: Startups, freelancers or small businesses with little financial history to borrow against.
What to Think of Before Applying?
- Loan Usage: Why the loan is required – working capital, plant and machinery, expansion, or for some emergencies.
- Amount: Consider how much money you really need so that you do not borrow too little or too much.
- Interest Rate and Charges: Be sure to compare offers from banks and NBFCs to find the most affordable package.
- Repayment Duration: Align the duration with your business cash flows and revenue cycles.
- Collateral: Determine whether the loan is secured or unsecured and what assets will be required to be pledged.
- Eligibility Criteria: All lenders will have different conditions in terms of credit score, turnover, and vintage.
- Turnaround Time: Evaluate the time it takes for the loan to be approved, particularly in urgent situations.
Leading Banks that Provide Business Loans in India
The following are some of the most reliable and dependable NBFCs and banks that provide the best in-market business loans.
- State Bank of India (SBI)
- HDFC Bank
- ICICI Bank
- Axis Bank
- Bajaj Finserv
- Tata Capital
- Lending kart
- Fullerton India
Fintech Startup Loans vs. Digital Lending
As digital banking and financial technology (fintech) solutions continue to gain ground, applying for a business loan has become efficient and convenient. Companies such as Indifi, Razorpay Capital, and NeoGrowth provide instant online business loans with low documentation and customised payment terms.
These are suitable alternatives for tech-savvy companies or those with limited credit profiles but who have substantial digital sales.
Loans for Indians under Government Initiatives
The Indian government has introduced the following funding schemes to promote business growth, employment generation, and innovation:
- The Pradhan Mantri MUDRA Yojana (PMMY)
- Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
- Stand-Up India Scheme
- SIDBI Make in India Loan Fund for Smaller Enterprises (SMILE)
These programs offer financial inclusion to underprivileged entrepreneurs and startup companies.
Conclusion
Business loans are not one-size-fits-all. The top loan for business in India will depend on your type of business, purpose of funding, financial status and risk appetite.
For startups without sufficient financial history, an MUDRA or an NBFC loan is the way to go. If you have an existing business and you’re scaling it, term loans or equipment financing might be more appropriate. If you are looking to manage working expenses, a working capital loan or an overdraft facility may be better suited.
Speak to an advisor, or compare business loans on the market online and choose what is right for your business.
FAQs
1. What is the best bank for business loans in India?
There are many banks that provide business loans, but SBI, HDFC, Bank, ICICI Bank, and Axis are believed to be the most reliable with their competitive interest rates and flexible repayment options.
2. Do businesses have to provide collateral for government loans?
Yes, numerous government schemes, such as MUDRA and CGTMSE, offer collateral-free loans (up to a specific limit), particularly for MSMEs and startups.
3. Is it possible to obtain a business loan with bad credit?
Yes, if you have a good credit score, you have a better chance of getting approved, as some NBFCs and fintech lenders provide business loans against turnover and cash flow rather than just a loan.
4. What will be the turnaround time for a business loan?
When it comes to loan sanctioning, it can be completed within 24–72 hours for digital lenders and 5–15 working days for traditional banks, after the documentation and verification procedures are followed.
5. Do I need a business plan to get a loan?
Yes, they frequently require a comprehensive business plan, especially initially, or substantial capital to evaluate legitimacy and creditworthiness.
