Banks and NBFCs provide business loans to people to start a business, expand a business and meet other business needs. There are two types of business loans, secured and unsecured loans. For a secured loan, applicants have to pledge some security/guarantor with the bank. However, in case of unsecured loans, there is no need to provide any security/guarantor to the bank. Read this article to learn how to get a business loan and what conditions have to be fulfilled for it.
Most banks/NBFCs offer both secured and unsecured business loans such as letter of credit, bill discounting, equipment finance, POS loans, term loans, working capital loans, loans under government schemes, overdraft, etc.
The minimum loan amount offered under business loans starts from Rs 10,000 which can be availed from Small Finance Banks (SFBs), Regional Rural Banks (RRBs), or Micro Finance Institutions (MFIs). Borrowers can avail of collateral-free business loans up to Rs 2 crore from leading private and public sector banks and NBFCs. Small business loans are also available for startups and MSMEs at competitive interest rates.
Business Loan: Interest Rates of Major Banks and NBFCs
| Bank/NBFCs | Bank/NBFCs | |
| Axis Bank | 10.75% every year | Apply Now |
| Flexi | 1% starting per month | Apply Now |
| HDB Financial Service Limited | 8% – 26% upto per annum | Apply Now |
| HDFC Bank Ltd | 10.75% – 25% every year | Apply Now |
| IDFC First Bank | 10.50% every year | Apply Now |
| Indifi | 1.50% starting per month | Apply Now |
| Kotak Mahindra Bank | 16% – 26% every year | Apply Now |
| Lendingkart Business Loan | 12% – 27% every year | Apply Now |
| Mcapital | 2% starting per month | Apply Now |
| NeoGrowth Finance | 15%-40% starting per month | Apply Now |
| Tata Capital | 12% every year | Apply Now |
| You Gro Capital | 9% – 36% starting per month | Apply Now |
Importance of CIBIL Score for Getting a Business Loan
CIBIL score also plays an important role in the approval of business loan applications. This score shows how your credit record has been and how you have managed your loans and credit cards so far. Generally, a CIBIL score of 750 or more is considered good by banks. If your CIBIL score is 650 or less, then there is still a possibility of getting a loan from NBFC, Small Finance Bank, and Micro Finance Institute.
The CIBIL score limit for non-working professionals, MSME, retailer or manufacturer etc. to get a business loan can be different for all.
Banks / NBFCs also set CIBIL score limits according to different types of business loans such as term loan, working capital loan, letter of credit, overdraft, POS loan, etc. Thus, the CIBIL score required for a business loan depends on the type of loan and the type of applicant.
People who are new to credit, i.e. those who do not have a CIBIL score, should also start building their CIBIL score for loan approval, as applicants with a low CIBIL score are more likely to get their loan application rejected. A high CIBIL score is required to get a business loan for start-ups, as the risk involved in lending to them is higher. Therefore, build and maintain a good credit score to increase your chances of loan approval.
Business Loan: Eligibility Criteria
Business running for: 1 year and above
The existing business should have a minimum annual turnover of Rs 12 lakhs
CIBIL score: 750 and above
The applicant should not have any record of previous loan defaults.
Eligible applicants who can apply for the loan
Individuals, non-salaried professionals, start-ups and small and medium businesses (MSME)
Private and public limited companies, partnership firms, limited liability partnerships and large companies in manufacturing, trading or service sector
NGOs, co-operative societies, trusts, CAs, doctors, architects, company secretaries, designers, etc.
Documents required for business loan
You may also need to submit the following documents while applying for a business loan:
Applicant’s KYC documents including PAN card, Passport, Aadhaar card, Driving license, Voter ID card, Utility bills (electricity/water bills)
Last 1 year bank statement
Copy of non-collateral overdraft, if any
Copy of business incorporation
Any other document required by the bank/loan institution
Business Loan Fees and Charges
Business loan fees and charges may vary from bank to bank. Fees and charges depend on the loan amount, interest rate, and repayment term.
Special loan schemes for women
To promote women empowerment, banks have started offering special loan schemes for women entrepreneurs. These loan schemes provide concessions in interest rates and security/guarantee. Some banks also have special departments for women entrepreneurs where they are informed about loan schemes, given business advice and also provided training. Women entrepreneurs whose share in the business is less than 50% are not eligible for women special loan schemes.
Following are some of the popular loan schemes for women entrepreneurs:
Mahila Udyam Nidhi Yojana
Mahila Samridhi Yojana
Cent Kalyani from Central Bank of India
Shringar and Annapurna from State Bank of India
Stree Shakti Package from State Bank of India
Dena Shakti Yojana from Bank of Baroda
Udyogini Yojana
Loan schemes provided by the Government of India
Mudra Loan Scheme
PMRY: Pradhan Mantri Rozgar Yojana
PMEGP: Pradhan Mantri Rozgar Srijan Yojana
CGTMSE: Credit Guarantee Fund Trust for Small Businesses
PSB Loan in 59 Minutes
Stand-Up India
Start-Up India
Credit-Guarantee Scheme
CLCSS: Credit Linked Guarantee Subsidy Scheme
National Small Industries Corporation Subsidy
Types of Business Loans
Term Loan
There are many types of term loans, such as short-term loans, long-term loans and other small business loans. The amount offered under a term loan depends on the credit profile of the applicant and can be repaid in 12 months to 5 years. Apart from the above types, term loans can be divided into two parts, unsecured business loans and secured business loans. For secured loans, security/guarantee has to be deposited in the bank, whereas no security has to be deposited in unsecured loans.
Working Capital Loan
Working capital loans are provided to meet the daily needs of businesses. This loan can also be taken for other purposes, such as expanding the business, purchasing machinery or equipment, purchasing raw materials, paying rent or salary to employees, etc.
Letter of Credit
Letter of Credit is used in international trade. An industry which does import-export business has to work with suppliers from other countries. These suppliers need a guarantee that they will get their payment on time, this guarantee is given by the bank by issuing a letter of credit on behalf of the industry.
Point of Sale (POS) Loan
In this Business Loan, the trader takes a loan on the basis of his sales record. The trader has to give the record to the bank about how many transactions have taken place on his POS machine (the machine on which debit/credit card is swiped for purchase/payment) in the last few months. On the basis of this record, the bank gives loan to the trader. There are also many options for loan repayment in this, such as, the trader will pay the loan every month or whatever purchase is being made on the POS machine, some part of it will go to the trader and some to the bank.
Overdraft Loan
In an overdraft loan, you are given an overdraft account for which a limited amount is sanctioned. You can withdraw money from that account whenever you want up to that limited amount. Interest will be charged only on the withdrawn amount and not on the entire amount. Example: If you have got an overdraft of Rs. 2 lakh and you withdraw Rs. 1 lakh from it, then interest will be charged only on Rs. 1 lakh and not on Rs. 2 lakh.
Business Loan FAQs
Question. What should be the CIBIL score to get an instant business loan?
Answer: Banks/loan institutions consider a CIBIL score of more than 750 as good.
Question. What should be the repayment period of a business loan?
Answer: If you are taking a short term loan, then the repayment period should not be more than 12 months. On the other hand, if you are taking a big loan, then you can choose a repayment period of up to 5 years.
Question. What is the impact of GST on new industries for taking a business loan?
Answer: The higher the GST payment of any industry, the more its business is running. Therefore, banks easily trust such industries.
Question. What should be the turnover of an existing industry to get a business loan?
Answer: The turnover of an existing industry for a business loan may vary from bank to bank/NBFC. However, industries whose minimum annual turnover is Rs 10 lakh. Can a person above 21 years of age apply for a business loan?
Q. Can a 21 year old person apply for a business loan?
Answer: Any person who is 18 years of age or above can apply for a business loan.
Q. What is the pre-closure and part-payment fee for a business loan?
Answer: The pre-closure and part-payment fee for a business loan varies from bank to bank/loan institution. In some banks, this fee is zero, and can go up to 5% of the loan amount.
Q. What are the business loan schemes run by the Government of India?
Answer: Some of the main business loan schemes of the Government of India are Mudra Yojana, SIDBI Loan, CGTMSE, PMEGP, Stand-up India, Start-up India, PSB Loan in 59 minutes, NSIC, NABARD, etc.
