Small Business Loan

Business loans are of different types. They are disbursed based on the type of business and the financial needs. The most common types of Business Loans are:

• Working Capital Loans
• Term Loans
• MUDRA Loans
• Pradhan Mantri MUDRA Yojana
• Stand-Up India Loans
• Bill Discounting
• Letter of Credit
• Overdraft Loans

Who all are eligible to apply for a Small Business Loan?

The following entities, classified as Small Businesses as per Government guidelines, are eligible to apply for a Small Business Loan

• Retailers
• Manufacturers
• Traders
• Sole Proprietorship Firms
• SMEs, MSMEs and Large Enterprises
• Partnership Firms involved only in Manufacturing, Trading or Service sectors
• Private limited companies and closely held limited companies

What are some of the purposes I can utilize Small Business Loans for?

You can use your small business loan to: 

• Increase your business cash flow
• Expand, repair or upgrade your current business unit

• Renovate your office
• Purchase, lease or repair machinery and equipment
• Upgrade to the latest technology
• Stock up on inventory
• Hire seasonal employees
• Purchase raw material for bulk orders
• Expand to another area or city
• Scale-up operations and take on bigger projects and much more

Is there an age criterion to apply for Small Business Loans?

Yes, there is an age criterion to apply for Small Business Loans

Minimum 21 years of age – Maximum 65 years of age

What is the income criterion to apply for Small Business Loans?

For a Private Limited or Limited Company 

• For loans up to Rs. 15 Lakhs – a net annual income of more than Rs. 1.5 lakhs
• For loans over Rs. 15 Lakhs – a net annual income of more than Rs. 3 Lakhs

For a Proprietorship firm or a limited liability partnership

It is determined by the bank. The company should submit their profit and loss statements. If it meets the minimum criteria of the lender, it will then assess the repayment ability of the borrower before sanctioning the business loan.

What are the factors determining my eligibility for Small Business Loan?

Business Plan: If you are applying for a Small Business loan for your start-up, make sure that you have a solid business plan. The plan should clearly elucidate the business potential, the financial outcome for the next few years. The plan should show the ability of the business to sustain, while underlining the security and risk factors of the business to the lender. A well-executed business plan will evoke confidence and faith in the borrower.

Business stability: If you are an existing business setup, your financial stability is important to the bank. They are going to look into the sales and profit aspects of your business. They will want to look into your business history and the tenure of your company. Usually, banks prefer companies which have a tenure of at least 3 years to sanction the loan. A well-established business with a stable profit is going to instil confidence and ease for the bank about your repayment capability.

Business Profitability & Continuity: Another important criterion is that your business should be making considerable profit. Banks wouldn’t want to lend money to a business that is not doing very well. Banks usually prefer businesses that are at least 3 years old and have been making profit consistently. Your organization’s profitability and revenue play an important role in determining if a company can be given a loan or not.

Current relationship with the Bank: Banks are naturally going to lean towards existing customers. If you have a good standing with the bank it is an additional advantage for you. The bank will look into all your relationships with the bank. The cash flow and payments into your account. It will also assess your repayment history on any existing loans you have with the bank.

Collateral: Though many government schemes give collateral free business loans, the borrower can pledge some kind of collateral, that he is comfortable with, to get better loan terms and interest rates. The government guidelines state that collateral is not mandatory, the applicant is free to provide some. Pledging a collateral acts as additional security on the loan, allowing for higher loan amounts and lesser interest rates.

What are the documents needed to apply for a Small Business Loan?

• Signed Application Form
• Identity Proof (Individuals) - PAN card, Passport, Driving License, Aadhar Card, Voter ID, any Govt. issued ID card
• Identity Proof (Business Entities) – PAN card
• Residential Address Proof (Individuals) - Passport, Driving License, Election ID card, Electricity/ Telephone/ Mobile bill/ bank statement (not more than 3 months old)
• Business Address Proof - Bank statement, utility bill, Registry copy, lease or rent agreement, TAN allotment letter
• Proof of Business Existence – PAN card, GST Registration, copy of Partnership Deed, Trade License, Certificate of Practice, Registration Certificate issued by RBI, SEBI
• Last 3 years’ ITR (self and business), Profit and Loss Account, Balance Sheets Certified/Audited by a CA.
• Last 12 months’ bank account statement (self and business)

Popular Government Sponsored Small Business Loan Schemes in India

MUDRA – Micro Units Development & Refinance Agency Ltd

• MUDRA has three loan schemes under it – Sishu loan up to Rs. 50000, Kishore loan up to Rs. 5,00,000 and Tarun loan up to Rs. 10 lakh
• This is a Government sponsored Refinance Support to banks and NBFCs to facilitate higher funds available for lending
• Small Business loans for entities involved in manufacturing, trading, services, tractor financing, agriculture and allied activities, and two-wheeler loans
• They also provide non-fund based support to small business entities through financial literacy and other social support services in addition to financial assistance

Credit Linked Capital Subsidy Scheme (CLCSS)

• Another Government scheme aimed at technological upgradation of small businesses
• Provides 15% capital induction for well-established and improved technologies
• Funds are disbursed primarily through SIDBI and NABARD 
• Nine nodal banks have been inducted to work along in the scheme

SMILE – to develop Make In India initiative

• Primary objective is to boost the Make In India initiative
• Eligible entities include new and existing MSME units in manufacturing sector or service sector undertaking expansion can avail this loan
• Loans issued in the form of Quasi-Equity
• Minimum loan size is Rs. 25 lakh
• Attractive rate of interest starting from 8.36%
• Repayment tenure of up to 120 months

The Credit Guarantee Fund Scheme for Micro and Small Enterprises

• A flagship scheme of the government to benefit the MSME sector
• Allows collateral free loans of up to Rs.10 lakhs
• New and existing MSME units involved in manufacturing or service sector can apply
• Retail trade, Educational institutions, Agriculture and Self-Help Groups (SHGs) are excluded

Popular Small Business Loan Schemes at Leading Banks & NBFCs

Bank of Baroda Composite Loans

• Small Enterprises (Manufacturing Sector) including artisans, village and cottage industrial units and Micro Enterprises in Small Enterprises Sector
• Micro/Small (Service Sector) Enterprises engaged in industrial activities only
• This loan can be availed to meet fixed capital investment needs and/or working capital requirements
• Up to Rs.100 lakhs. A margin of 15% – 25% on composite loans above Rs.25 lakhs up to Rs.100 lakhs
• Minimum 3 years and maximum of 10 years (which can be extended), with initial holiday of 12 months to 18 months

Bank of Baroda Small Business Loans

• This loan is suitable for individuals conducting business independently, with or without hired labour - such as persons in the medical profession, lawyers, engineers, contractors, consultants, electricians, hairdressers, handicrafts artisans, etc.
• The loan amount can be utilized for purchase of equipment or repair of existing equipment. It can also be used for generating working capital.
• The maximum loan amount offered is Rs. 5 Lakhs for businessmen and professionals out of which the working capital should not exceed Rs. 1 Lakh.

Baroda SME Loan Pack

• Baroda SME Loan Pack provides a single line of credit for meeting SME borrowers’ working capital as well as long term requirements.
• All Enterprises, Micro, Small & Medium Enterprises, as defined under MSMED Act, 2006, and other entities with an annual sales turnover of up to Rs. 150 crores.
• It offers hassle free credit for working capital (fund based and non-fund based) as also long term requirements

Baroda MSME Capex Loan: 

• This loan is targeted at MSME borrowers (Regulatory) and SME (Expanded) rated BOB-5 and above.
• The manufacturing/service sector units should have been established in the line of activity for a minimum period two years
• Repayment tenure of 3 – 7 years including the moratorium period
• Loan of up to Rs.5 crores

Punjab National Bank 

PNB WMS (Weaver Mudra Scheme)

• This loan can be availed by existing handloom weavers having satisfactory credit score
• Loan for the purpose of meeting working capital requirement
• Loan amount of up to Rs.5 lakhs, based on the need of the borrower
• Offered as Overdraft limit or Cash Credit facility
• Rate of Interest: 6% shall be borne by the borrower and in excess to it by the Government (Max. up to 7% for 3 years from date of disbursement) as interest subsidy, in standard accounts

PNB Vanita

• Scheme for financing women to set up an enterprise for income generation. They can set up a business either in manufacturing/ service/ trading/ small business etc. Preference will be given to women belonging to ST/ SC/ BPL category.
• Loan can be utilized for setting up new unit/enterprise or for expansion/modernization of existing unit; for acquisition of fixed assets (Plant & Machinery, equipment, furniture & fixtures)
• Can be used to meet working capital needs too
• Extent of composite loan is up to Rs. 25,000
• Repayment tenure of 3 to 5 years with maximum moratorium period of 3-6 months depending upon the nature of the enterprise

PNB Green Ride

• Ideal for transport operators of e-rickshaws for carrying passengers or goods on hire
• Can be availed by individuals, transport operators, Associations, Sole Proprietorships, Partnership firms, Private Ltd. Companies & Public Ltd. Companies
• 85% of the invoice cost can be availed as loan for new vehicle purchase
• Repayment tenure will be a maximum of 33 months 

PNB Seva

• A need based loan offered to MSME Service units
• Can be availed by Individuals/Partnerships/Limited Liability Partnership/Private Ltd. Co. /Public Ltd. Co/Trust and Co-operative Societies registered and categorized as Micro, Small & Medium Enterprises
• Given for the purpose of working capital requirement and term loans to acquire and develop assets
• Offered as cash credits or overdraft facility, term loans or composite loans
• Repayment tenure ranges from 1 year up to 7 years

IIFL Small Business Loans

• Business loans of up to Rs.50 lakhs, Insta loans of up to Rs.15 lakhs, Loan against POS Machine of up to Rs.50 lakhs
• Repayment tenure of 12-48 months
• Choose flexible repayment options
• Interest rate between 16 – 30%
• No collateral required
• Hassle free application process, minimal documentation and quick approval

Bajaj Finserv Small Business Loans

• Hassle free loans of up to Rs.30 lakhs
• Large capital at affordable rates
• Flexi loan facility allows you to withdraw only what you want
• 24-hours approval on unsecured loans
• Collateral free loans
• Pre-approved offers for instant collateral free loans
• Online account access to manage your loan account

Small Business Loans FAQs