Multiple banks. Different interest rates. Call it a "conflict of interest".

    Small Business Loans

    If you are an owner of a small business, you very well know how business loans can save your day. Whether you are just starting up a business or you wish to expand your business operations, business loans can lend a helping hand. Business owners are likely to need funds at any stage of the business cycle which is why many lenders have come forward to offer business loans to startups or small businesses. Small business loans ensure that no obstacle comes in the way of your business.

    Lenders Offering Small Business Loans in India

    Lender’s Name Interest Rate (pa.) Repayment Tenure Loan Amount
    HDFC Bank 15.65% to 21.20% (Rack Interest Rate) 12 months to 48 months Up to Rs.50 lakh
    Tata Capital 19% onwards 12 months to 36 months Between Rs.5 lakh and Rs.50 lakh
    Bank of Baroda Varies with tenure and type of advance - Up to Rs.5 lakh
    Magma Fincorp - 12 months to 48 months Rs.3 lakh to Rs.2 crore
    State Bank of India 8.25% to 16.95% Up to 60 months Rs.10 lakh to Rs.25 lakh

    HDFC Bank Business Loan


    • No collateral or guarantor required
    • Offers the benefit of balance transfer
    • Dropline overdraft facility of up to Rs.5 lakh
    • For a nominal premium, borrowers can insure their principal outstanding with an insurance product known as ‘Credit Product’
    Lender’s Name Processing Fee Prepayment Charges
    HDFC Bank Rs.2,359 to Rs.88,500
    • 7 months to 24 months – 4% of principal outstanding
    • 25 months to 36 months – 3% of principal outstanding
    • Above 36 months – 2% of principal outstanding

    Tata Capital Business Loan


    • Offers customised business loans to meet business requirements
    • Loans are designed to fit borrower’s budget
    • Flexible and easy repayment tenures
    • Loans are available in the form of term loans, overdrafts, and working capital loans
    Lender’s Name Processing Fee Foreclouser Charges
    Tata Capital Up to 2.75% of the loan amount plus GST 4.5% on the future principal outstanding plus GST

    Bank of Baroda Small Business Borrower


    • Loans can be used to purchase equipment necessary for business and also for the repair of existing equipment
    • All accounts rated A and above will get the benefit of a lower interest rate
    • The application process is hassle-free and quick
    • Loans can be availed from any Bank of Baroda Branch
    Lender’s Name Processing Fee Foreclouser Charges
    Bank of Baroda Up to 0.75% of the sanctioned limit -

    Magma Fincorp SME Loans


    • Repayment options are flexible and can be customised as per borrower’s requirements
    • Loans can be availed without providing any collateral or security
    • Borrowers can choose from the various types of loans available
    • It is one of the largest providers of collateral-free loans in India

    State Bank of India – Simplified Small Business Loan


    • Loans can be availed to build up current and fixed assets of the business
    • The pricing of the loan is competitive and is linked to the Marginal Cost Lending Ratio (MCLR)
    • A minimum of 40% collateral must be provided to avail the loan
    • Borrowers need to be in the existing business for a minimum of 5 years in the same area or locality to avail the loan

    Eligibility Criteria for Small Business Loans

    The eligibility criteria for small business loans may vary from lender to lender but below we have listed the generic ones:

    Area of Business Proprietors, partnership firms, self-employed individuals, private companies involved in the business of trading, manufacturing, or services
    Age Borrowers should be at least 21 years old during the time of loan application and should be aged less than 65 years during the time of loan maturity
    Minimum Turnover Rs.40 lakh
    Minimum Annual Income Rs.1.5 lakh p.a.
    Profit The business should be making profit for the previous two years

    Please note that the eligibility criteria may vary from lender to lender and hence, it is recommended that you check with the particular lender for the eligibility criteria.

    Documents Required for Small Business Loans

    Application form Filled and duly signed
    KYC Documents Business entity proof, partnership deed, incorporation certificate, shops and establishment certificate, Articles of Association (AOA)
    • Projected turnover and current year performance
    • Tax audit reports, balance sheet, profit and loss report, VAT returns, audited and provisional financials, etc.
    Bank Statements For the last 6 months
    Photographs Passport-size photograph of applicant/co-applicants
    PAN Card
    • Of partners/directors/proprietors/promoters
    • Of the business entity
    Address Proof
    • Of the business entity
    • Of directors/promoters/partners/proprietors

    Benefits of Small Business Loans

    • Easily accessible

    Since many lenders including banks and non-banking financing companies (NBFCs) offer small business loans to their customers, it is easy for companies to receive financial aid for their business needs using this scheme. With multiple online EMI calculators available, borrowers can also plan their loans better beforehand to avoid loan rejections and manage their finances better. Additionally, most of the banks and NBFCs offering this kind of a loan provide online applications to allow their customers to keep a track of their loans after the amount is disbursed. Borrowers can remotely check details such as interest certificate, payment schedule, repayment history, etc. through these applications.

    • Multiple repayment options

    When an entrepreneur opts for this financing plan to fund his or her business venture, he/she has the option to repay the loan using a repayment method that is convenient to him/her. Since lenders understand the difficulties and underlying complexities involved in running a business, they might devise a personalised repayment plan before sanctioning the loan. This not only helps the borrower manage the business cash flow better, but also make timely loan repayments. Under this scheme, customers can also choose to increase/reduce the EMI amount or opt for the bullet payment method as per the financial condition of the business.

    • Hassle-free application process

    Due to minimal documentation and simple application process, this scheme is preferred by many entrepreneurs to fund their business requirements. Many banks and NBFCs provide online application method to the borrowers so that they can easily apply for this scheme without having to step out of their houses.

    • Quick fund disbursal

    When a businessman applies for a loan under this scheme looking to start a new venture or expand his or her current company, he/she can be assured that the funds will be quickly disbursed to his/her account. Owing to the fast loan application and approval process, borrowers can get access to quick funds when applying for a small business loan.

    • Customisable solutions

    Whether you are planning to start a new business or looking to expand/upgrade your current one, you will have the flexibility to opt from a wide range of customised solutions to suit your specific business need. This will help you choose a plan that suits the fund requirements of your unique business.

    • Affordable interest rates

    The interest rate of small business loans depends on various factors such as the loan tenure, market dynamics, the credentials of the applicant, the financial condition of the business, etc. Most government-backed financing schemes offered by banks and NBFCs offer loans at low interest rates to help business owners repay their debts on time, thereby, reducing the chances of a bad loan. Usually, these loans also have nominal processing fees and other one-time charges with no hidden fees.

    • Helps manage business finances better

    Since a healthy amount of cash flow is required to keep a business running, these loans are a great way to gain access to funds in order to gain a competitive edge while increasing the amount of revenue generated. The funds from this loan can be used to start a new business branch, launch a marketing campaign, or upgrade an inventory to deal with the sudden demands of a seasonal business. Then, the profit earned from these routes can be used to repay the debt and for further reinvestment. Furthermore, most of the lenders do not specify how the funds should be invested. Therefore, the business owners have the complete flexibility to use it as per their business requirements.

    • Tax relief for businesses

    Under the Income Tax Act, 1961, small business loans also offer tax benefits to the borrowers. Therefore, the interest paid on such small business loans are eligible for tax deductions.

    • No collateral required

    Many banks offer small business loans to their customers without any collateral. Therefore, availing such loans means there are less chances of businesses losing their assets in case they default during the repayment of their loans. In such cases, the business is assessed based on its expected receivables and cash flow. Before applying for this loan, it is advisable that the entrepreneur consults the lender regarding the requirement for collateral to avoid any future conundrum.

    Types of Small Business Loans in India

    Government: As mentioned above, the government has mooted special schemes to boost the capacity of small business units across the country. Loans are provided to the elderly, minorities, factory equipment or office expenditures among many others.

    Micro loans: The maximum repayment term is six years. Microloans are offered provided there is a robust business plan and a profitable venture.

    Business organizations: Large business conglomerates can offer financial assistance to small business units provided the latter show potential for growth and are lucrative in terms, turnover to repay the loan amount. Some examples include franchise loans and export financing. Documents required include a sound business plan, financial status report, credit ratings, and cash flow projections among many others.

    Personal loans: Several banks offer personal loans anywhere from Rs. 10 to 25 lakh which are typically unsecured at 18 to 24%. The loans are repaid through installments.

    Professional loans: These are unsecured loans provided to self-employed professionals such as chartered accountants, company secretary, doctors and so forth. It does not encompass manufacturing and processing units. The loan amount varies from Rs. 25,000 to Rs. 25 lakh depending on the financial status of the applicant, loan tenure and repayment capacity at a rate of interest which depends on the prime lending rate.

    Project Finance: Provided for new long-term infrastructure or industrial projects with flexible repayment terms on the basis of the project assessment report.

    Equipment Finance: Provided to buy new equipment or lease equipment for business units.

    Working Capital Loans: Provided for daily business needs for smooth functioning of the units.

    Bill discounting: Provided to ensure that your unit discounts bills before the maturity date.

    Lease rental: Provides term loan against lease contracts to facilitate business requirements.

    Financial advisory: Provided for assistance by financial experts.

    Insurance: Provides finance for insurance solutions for better safety.

    Trade loans: Provided to traders for starting a new business enterprise or expand the current business unit. The loan is repaid through Equated Monthly Installments or EMIs. The rate of interest is based on the prime lending rate (fixed and fluctuating). Some banks ask customers to submit collaterals such as land, National Savings Certificates, life insurance policies, etc. In addition, shares and bonds are also accepted as collaterals against which loans could be provided.

    How to Apply for Small Business Loans?

    There are 3 ways by which borrowers can apply for small business loans. The first way is by visiting the official website of the lender, filling up the application form available with a few basic information, and uploading the necessary documents. After that, your details will be verified by the lender. Once the verification is completed, the loan amount will directly be credited to the bank account provided by you during the application process. You can also apply for a business loan through the official website of BankBazaar which offers a hassle-free and quick way of availing any type of loan.

    The second way of applying for a business loan is to call up the customer care number of the lender whose representatives will guide you on the complete application process.

    The third way to apply for a small business loan is to visit the nearest branch of the lender. Once you visit the branch, you will be asked to fill up the application form provided by the officials of the lender and submit it along with the necessary documents.

    Frequently Asked Questions on Small Business Loans

    1. I have an idea for a startup. Can I apply for a business loan?

    Answer: It can be really challenging to get a small business loan for a business idea as most banks prefer lending to businesses that have been running for at least 6 months. However, there are some NBFCs that may offer you loans based on your business idea. Remember to explore all the options available before you pick a specific lender for a business loan. If in worst cases, you are unable to find a lender to fund your business idea, you can always avail a personal loan and use it to fund your business idea.

    2. How can I repay the small business loan I have availed?

    Answer: You can repay the business loan availed in 3 ways – Post Dated Cheques (PDCs), Direct Debit, and Electronic Clearing Service (ECS). The last 2 ways are the preferred mode of repayment by most borrowers and lenders alike.

    3. What is the maximum amount of loan that can be availed as a small business loan?

    Answer: The maximum amount of loan that can be availed as business loan will vary according to a lot of factors such as type of business, the lender, credit score of the applicant, etc. The maximum loan amount can go up to Rs.2 crore based on the mentioned factors.

    4. Do I have to provide any security or collateral to apply for a small business loan?

    Answer: There are many lenders who will not ask you to provide a collateral or security for small business loans but there are also a few who might. Collaterals may, however, help borrowers get a higher loan amount as this will give confidence to the lenders that in case of defaults, they can sell the asset provided and recover the loan amount.

    5. What is the EMI that I need to pay on the small business loan?

    Answer: The amount of EMI will depend on the amount of loan you avail and also the repayment tenure you choose. You can use the EMI Calculator available on the website of BankBazaar under the ‘Finance Tools’ section to calculate the EMI on your business loan.

    6. Is the interest rate on a small business loan floating or fixed?

    Answers: Most lenders will offer a fixed rate of interest on small business loans which means that there will be no fluctuation in the interest rate during the chosen repayment tenure. A fixed rate of interest allows the borrower to predict his/her future payments.

    7. What can the loan availed as small business loans be used for?

    Answer: Small business loans can be used for a variety of purposes such as expansion of business to another town or city, increase the cash flow of the business, office renovation, purchase of raw materials, lease bigger office spaces, scale up the operations of the business, etc.

    8. If I am engaged in khadi activity, am I eligible to avail the Mudra loan offered by the government?

    Answer: Yes, khadi activities are eligible for Mudra loans. In fact, any activity that generates income in the areas related to manufacturing, trading, or services is eligible for availing Mudra loans.

    9. What is the maximum repayment tenure offered on small business loans?

    Answer: The maximum repayment tenure on small business loans will depend on the lender and the amount of loan taken. However, the maximum tenure offered by lenders is 60 months.

    10. Is opening a fashion boutique eligible for a small business loan?

    Answer: Yes. Since a fashion boutique will generate income, it is eligible for a small business loan.


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