How to Get a Business Loan in India — Types, Eligibility, Documents & Best Banks (2025)
Getting a business loan in India is far easier than it was a decade ago — but choosing the right type, approaching the right lender, and having the right documents ready still makes all the difference between an approval and a rejection.
NV
Nakul Verma
Founder, Moneyed · 16 Years in Loan Advisory
July 13, 2025 10 min read
Key Takeaways
Most banks require a minimum 2 years of business vintage before considering a loan
Filing ITR is non-negotiable — without tax returns, you won't get serious loan amounts
Under MSME schemes (Mudra, CGTMSE), you can get collateral-free loans up to ₹2 crore
Your personal CIBIL score matters even for business loans — keep it above 750
Working capital loans and term loans serve different needs — pick the right one for your situation
India has over 6 crore MSMEs. Each one has the same dream — a little more capital to grow a little faster. But walk into a bank and the confusion begins: which loan type? How much can I get? What do they need from me?
In 16 years of handling business loan files — from kirana stores to manufacturing units — one pattern has been consistent: borrowers who come prepared get the loan. Those who don't get rejected or end up with bad terms.
This guide eliminates that confusion.
Types of Business Loans — Which One Is Right for You?
Type 1
Term Loan — For Fixed Capital Needs
A lump sum disbursed once — used to buy machinery, build a warehouse, or expand your operations. The EMI is fixed and the tenure is typically 1–7 years.
ParameterDetail
Interest Rate11% – 18% p.a.
Loan Amount₹5 lakh – ₹5 crore
Best ForEquipment, expansion, property purchase
Tenure1–7 years
Type 2
Working Capital Loan — For Day-to-Day Operations
Designed for buying inventory, paying salaries, and settling vendor payments. This is revolving credit — you pay interest only on what you use. It comes as an Overdraft (OD) or Cash Credit (CC) facility.
ParameterDetail
Interest Rate10% – 16% p.a.
Loan Amount20–25% of annual turnover
Best ForTraders, retailers, seasonal businesses
TypeCC / OD — revolving credit line
Type 3
Mudra Loan — For Micro Businesses
Part of the government's Pradhan Mantri Mudra Yojana — collateral-free loans up to ₹10 lakh. Suitable for small shops, street vendors, beauty salons, transport operators, and self-employed professionals. Three tiers: Shishu (up to ₹50K), Kishore (up to ₹5L), Tarun (up to ₹10L).
ParameterDetail
Interest Rate8% – 12% p.a. (subsidised)
Max Amount₹10 lakh
CollateralNot required (Shishu & Kishore)
Apply ViaAny PSU bank, RRB, MFI, or fintech
Type 4
CGTMSE — Collateral-Free Up to ₹2 Crore
The Credit Guarantee Trust for Micro & Small Enterprises is a government-backed guarantee scheme. Under this scheme, you can get up to ₹2 crore in business loans without any collateral — the government guarantees the loan on your behalf. Applied alongside your bank loan application.
ParameterDetail
Max Amount₹2 crore (collateral-free)
EligibilityManufacturing or Service MSMEs
Guarantee Fee0.37% – 2% p.a. (borne by borrower)
Type 5
Loan Against Property (LAP) for Business
If you own property — a house, shop, or warehouse — you can pledge it as collateral and access a much larger loan at the lowest available rate (9–14%). Business vintage and ITR conditions are less stringent since the loan is secured by real estate.
ParameterDetail
Interest Rate9% – 14% p.a.
Loan Amount50–70% of property value
Best ForLarge business needs ₹20L+
Eligibility — What Do Banks Actually Check?
1
Business Vintage (Age) — Minimum 2 years of established operations. If your business is newer, focus on Mudra or CGTMSE schemes instead.
2
Annual Turnover — Banks want to see stable or growing turnover. Working capital limits are typically 20–25% of your annual turnover.
3
ITR Filing — Last 2–3 years of Income Tax Returns are mandatory for loans above ₹5 lakh. Without ITR, your only options are Mudra or small NBFCs.
4
Personal CIBIL Score — The proprietor's, partner's, or director's personal CIBIL score is checked — even if the business is a separate legal entity.
5
GST Returns — If your business is GST registered, GSTR-3B for the last 12 months is typically requested as additional income proof.
Documents Checklist
KYC Documents — Aadhaar and PAN of proprietor, partners, or directors
Business Proof — GST certificate, Shop Act licence, Udyam registration, partnership deed, or MOA/AOA
Last 2–3 Years ITR — with computation sheet and profit & loss statement
Bank Statements — Current account, last 12 months
GST Returns — GSTR-3B for last 12 months (if applicable)
Property Documents — If applying for LAP: title deed and encumbrance certificate
Expert Tip: Six months before applying for a business loan — keep your current account healthy (regular credits, no bounced cheques), file your ITR, and improve your personal CIBIL. Your bank statement is your business's salary slip. If it doesn't show healthy, regular transactions, the loan won't come easily — even with good ITR numbers.
Which Bank Is Best for a Business Loan?
Bank / LenderBest ForNotes
SBI / PNB (PSU)MSME, CGTMSE, MudraBest rates, but slower processing. Apply via MSME portal.
Bajaj / Ugro / LendingkartQuick unsecured ₹5–50LNBFC — flexible eligibility but rates of 16–24%.
Razorpay / Indifi / FlexiLoansE-commerce & online businessesDigital-first — use GST and bank data. Fast but premium rates.
Moneyed AdvisoryCompare 15+ lendersFree guidance to find the best match for your profile.
Warning: "No ITR needed, no CIBIL check, loan in 24 hours" — advertisements like this almost always lead to predatory lenders charging 36–48% annual interest. Once you take that loan, getting out of the debt trap is extremely difficult. Always borrow only from RBI-registered banks or NBFCs.
Disclaimer: This article is for educational purposes. Loan terms, eligibility, and rates vary by lender and borrower profile. Mudra and CGTMSE scheme details are subject to government policy changes. Consult a qualified advisor before taking any financial decision.
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