With an expeditiously growing economy and the thriving start-up culture in the country, several promising entrepreneurs took the plunge into the world of business in India.

However, assembling funds is the biggest hurdle, be it elevating the business operations or initiating a new venture. Initially, entrepreneurs had restricted access to the available funding options. In some cases, entrepreneurs had to count on their resources, resulting in the depletion of their growth potential.

But there is good news too!

In the last few years, a plethora of new business loans has been prevalent in the market, provided by several financial institutions and banks in India.

Did you know?

In the financial year 2022, the total value of business loans in India was more than the previous year and rose to 86 trillion.

This article will explore the banks that offer such commercial/business loans. We will also highlight the eligibility criteria and documents required to avail of such loans.

Business Loans in India

Business loans are one of the best ways to quench the financing requirements of your enterprise. That is why the lending market in India shot up to Rs. 174.3 lakh crore in Mar. 2022, around an 11.1% hike compared to Mar. 2021.

However, securing business loans in India for a start-up is a backbreaker for entrepreneurs while starting a new business. To end this misery, several banks offer huge sums without any pre-approved offers or collateral.

Note: Once a business loan is sanctioned, it is credited to the borrower’s account, which is chargeable with a specific percentage of interest.

Purposes of a Business Loan

Here are the primary reasons for a company to apply for a business loan:

  • To boost the working capital

    Fuelling the working capital helps businesses to meet unforeseen expenses. Such expenses include paying a supplier, buying raw materials during the off-season, etc.

  • For the acquisition of raw materials, new location, and assets

    Acquiring new machines, company vehicles, office premises, etc., add value to your business operations. Consequently, elevating the firm’s productivity.

  • For debt repayment

    Reimbursement of debt on time prevents your business from encountering financial problems in the future. Hence, a business loan at nominal rates is a requisite.

  • For diversifying business or product launch

    Stepping into a new market or launching a new product requires both research and execution. A business loan is indispensable to address them.

  • For financing a new marketing campaign

    Conducting a new marketing campaign demands fresh talent, strategists, designers, etc. That’s why a business loan can be a game-changer.

Types of Business Loans

Here is a brief overview of the different types of business loans in India:

1. Term Loans

Short-term loans, used by businesses to procure assets. The EMI for such loans is paid with or without any moratorium period.

2. Balloon Loans

Businesses pay the loan interest during the repayment tenure. The principal sum is paid post the loan term.

3. Project Financing

Business loans offered to mid and large-sized companies to buy big assets.

4. Working Capital Loans

Short-term loans are provided to businesses to help sustain operation expenses.

5. Loan Against Property

Loans that are provided against the property.

6. Loan against Securities

Loan applied via existing securities like mutual funds, fixed deposits, stocks, etc.

7. Government Schemes

Government-funded schemes like PM Mudra Yojna for developing and refinancing activities of micro businesses.

8. Letter of Credit Facility

A financing scheme that is procurable depending on the creditworthiness of the bank.

9. Cash Credit Facility

An overdraft loan is provided in exchange for collateral to meet the working capital requirements.

10. Business Loans for Women Entrepreneurs

Banks offer distinctive loan schemes to women entrepreneurs with more than 50% shares of their organisation.

11. Bill Discounting

Instant cash on purchases or credit sales by discounting the sales bill at the bank with documents like track receipts, invoices, etc.

12. Unsecured Business Loans

A collateral-free loan is offered to small businesses with a high credit score.

Different Business Loans You can get in India

Here is a synopsis of the different business loans available in India:

1. Business Loans for Start-ups and New Businesses

Acquiring capital for a start-up is one of the foremost challenges of an entrepreneur in their expedition. Even though multiple funding options are fostered in the market, a visionary entrepreneur always relies on the funding methodology of banks since:

  • No need for equity dilution in banks
  • Profit/loss is not shared with banks
  • Banks are more accessible than venture capitalists.
  • Banks have a systematic framework for financing several requests.

2. Business Loans for Bad Credit

Some banks offer loans even if your credit rating is poor. However, such loans are provided only when the business assets value more than the loan needed.

3. Business Loan for Women Entrepreneurs

For the growth of the Indian economy, creating an ecosystem that supports women entrepreneurs is a must. However, only 14% of the business establishments in India are run by women.

The key issue is the lack of business loans for women. That’s why the government of India has set up special loan schemes specifically for women, namely:

  • Dena Shakti Scheme
  • Stree Shakti Scheme
  • Udyogini Scheme
  • Annapurna scheme
  • Cent Kalyani Scheme
  • Bharatiya Mahila Bank
  • Mahila Udyam Nidhi Scheme

4. Business Loan for Expansion or Working Credit

Do you wish to expand your small business? Are you looking for funding?

With a good credit score, requisite documentation, and revenue details getting a business loan for expansion is a cakewalk. However, you must select a bank that offers the best interest rate, has no hidden charges, and charges a low processing fee.

Features of Business Loans

Before you bid for a business loan, you should be well-versed in its features and what it offers:

  • Collateral-Free

Most banks offer unsecured business loans that do not require any collateral. However, your credit score, past income, and age are essence for sanctioning.

  • Competitive Interest Rates

Most banks offer reasonable interest rates on business loans that are often below the industry average, unlike private financial institutions.

  • Quick Approvals

Most of the banks offer quick approval of business loans once the documents submitted are verified. After successful verification, business loans are disbursed quickly.

  • The Convenience Of Online Transactions

Small business loans from banks can be applied online. Not to mention, you can access capital from your residence.

  • Extended Loan Tenure

Banks provide commercial loans and a flexible repayment schedule, depending on the cash flow of your business.

  • Simplified Documentation Process

Most banks need only essential documents to initiate loan processing and reduce delays. As a result, borrowers can obtain capital quickly.

  • Higher Loan Disbursal Amounts

Based on a good credit score and a steady flow of income, banks disburse higher loan amounts to help you address business-related expenses.

  • Customisation

Business loan amount, interest rate, tenure, etc., can be customised as per the requirement and financial capacity of the borrower.

Benefits of Business Loan

1) Accessible & User-friendly

Business loans from banks are easily accessible via its online portal. From document submission to making transfers, convenient online banking platforms have made things much more manageable.

2) Multiple Loan options

Top banks in India offer multiple loan schemes and programs to business owners. You can opt as per your requirement.

3) No share in Profit/Loss

Unlike venture capitalists and angel investors, banks do not demand any share in business profit or loss or seek partial ownership.

4) Minimal Rates of Interest

Compared to other lending agencies, banks charge relatively low-interest rates.

5) Tax Rebate

Companies that opt for business loans get significant tax benefits since the earned revenue is used to repay the loan.

Which Are The Top 11 Best Business Loan Banks In India?

Here is an overview of the best banks offering business loans in India:

1. HDFC Bank Business Loan

Eligibility Criteria

  • Minimum business turnover = Rs. 40 lakh
  • The last two years of the business should yield profit

Fee and Charges

  • Up to 2.50% + GST as applicable

2. Axis Bank Business Loan

Eligibility Criteria

  • Business experience = Minimum three years
  • Age group = 21-65 years

Fee and Charges

  • Up to 2% + GST as applicable

3. ICICI Bank Business Loan

Eligible Parties

  • Age group = 28-65 years
  • Turnover = Rs. 40 LPA for non-professionals and 15 LPA for professionals
  • Tax return = Last one year
  • Bank statement = Last six months

Fee and Charges

  • Up to 2% + GST as applicable

4. Kotak Bank Business Loan

Eligibility Criteria

  • Business turnover = Minimum Rs. 40 Lakhs
  • Age = 25-65 years
  • Business should yield profit for minimum one year
  • Business category = Manufacturing, service provider, or trader

Fee and Charges

  • Up to 3% + GST as applicable

5. IDFC First Bank Business Loan

Eligibility

  • Business Existence = Minimum three years
  • Sole proprietorship firms, partnership firms, and self-employed individuals can apply

Fee and Charges

  • 1.5% + GST as applicable

6. SBI Business Loan

Eligible Parties

  • Business Existence = Minimum five years
  • Minimum existence of current account = 2 years
  • Minimum average monthly balance = Rs. 1 lakh

Fee and Charges

  • 2-3% + GST as applicable

7. Citibank Business Loan

Eligible Parties

  • Age group = 21-65 years
  • Business category = Manufacturing, service provider, or trader
  • Minimum existence of business = 3 years

Fee and Charges

  • Up to 2% + GST as applicable

8. Bajaj Finserv Loan

Eligible Parties

  • Business existence = Minimum three years

Fee and Charges

  • Up to 2% + GST as applicable

9. IndusInd Bank

Eligible Parties

  • Minimum turnover = Rs. 1 crore
  • Profitability = Last three years
  • Capital = More than 10 lakh

Fee and Charges

  • 0.5% + GST as applicable

10. Tata Capital

Eligible Parties

  • CIBIL score= Above 700
  • Age limit= 21-65 years
  • Profitability = Last three years

Fee and Charges

  • 1.50% -2.50% + GST as applicable

11. Standard Chartered

Eligible Parties

  • A sole proprietor or a partnership firm
  • Age group = 21-60 years
  • Applicant’s minimum income = Rs 18000

Fee and Charges

  • Up to 2% + GST as applicable

Some Mandatory Documents Demanded by all Banking Institutions

Banks conduct document verification to ensure that the customers meet the business loan eligibility requirements as stated by the particular bank.

Here is the list of the mandatory documents as required by a majority of the banks:

  • PAN card of the firm, company, or individual
  • Resident proof
  • Identity proof like Passport copy, Aadhar copy, Driving License, etc.
  • Business stability proof (only for self-employed individuals)
  • Current Income Tax Return, the Balance Sheet, income computation, last 2 years’ profit and loss, etc.
  • Last three-month salary slip for salaried individuals
  • Correctly filled the application form along with passport-size images
  • Last six-month salary slip
  • Sole Proprietorship Declaration

Conclusion

Most entrepreneurs invest their funds in the company and try to move ahead. As a result, it is taking a financial toll or burden on the entrepreneurs’ bank balance.

The ideal way is to shortlist any of the recognised banks stated above and use the funds appropriately to thrive. The start-up culture is booming, and there is more need for business loans.

FAQs

Which Indian Bank is best for a business loan?

Almost all banks provide business loans in India. However, some banks’ interest rates and loan terms are very appealing to borrowers compared to other options available in the market. Borrowers of corporate loans opt for a bank that charges reasonable interest rates and upholds agreeable loan terms for businesses.

Which loan is best for a start-up business in India?

There are several business loan options for start-ups available in India. However, one of the best loan options for start-ups in India are government loan schemes that charge low-interest rates and provides convenient repayment options to help businesses prosper.

Can I get an MSME loan for a new business?

MSME loans are offered for:

  • Entrepreneurs
  • Self-employed individuals
  • Proprietorship business
  • Micro and medium-sized businesses
  • Partnership companies

How much will a bank loan a business?

Usually, banks in India provide loans for businesses of around 10-30% of the total revenue.

Which loan interest is low in India?

The best low-interest loans in India are personal loans provided by ICICI bank.

What is the CIBIL™ score?

CIBIL score is also termed as credit score. It is assigned to businesses or individual credit borrowers. The score states the creditworthiness of the borrower. A higher CIBIL score means good creditworthiness.

Do banks give loans to start a business?

Yes, banks provide personal and business loans to commence a business. Such loans are provided at competitive rates for businesses.