Business Loan

Business Loan in India

MSME loans, Mudra Yojana, working capital, and loan against property — all in plain English. SIDBI, CGTMSE, and bank schemes for Indian enterprises. No jargon.

MSME Loans

Micro, Small, and Medium Enterprises (MSMEs) in India can access loans through three main channels: bank MSME schemes, SIDBI, and CGTMSE-backed loans without collateral. Understanding which applies to your business size and type is the first step.

Bank MSME schemes

Most public and private sector banks have dedicated MSME lending arms. Interest rates typically range from 10–18% p.a. depending on the loan size, business vintage, and credit profile. Loans from ₹1 lakh to ₹5 crore.

SIDBI

The Small Industries Development Bank of India (SIDBI) is the principal financial institution for MSMEs. Schemes include SIDBI Startup Siddhi, SIDBI Assist, and direct lending for micro-enterprises. Rates from 8% p.a.

CGTMSE

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) provides collateral-free loans up to ₹5 crore per unit. The guarantee covers 75–85% of the default amount, letting banks lend without collateral. Annual guarantee fee of ~0.5–1% borne by the borrower.

Mudra Loans

The Pradhan Mantri Mudra Yojana (PMMY) is a government-backed micro-enterprise financing scheme. It is not a bank — it is a brand under which banks, MFIs, and NBFCs lend to micro and small businesses. There are no collateral requirements for any Mudra loan.

Mudra loan tiers

Shishu

Up to ₹50,000 — for very small businesses, micro-enterprises, and informal sector businesses. Typically used for buying equipment, tools, or working capital.

Kishore

₹50,000 to ₹5 lakh — for businesses that have crossed the initial stage and need more capital for growth, inventory, or scaling operations.

Tarun

₹5 lakh to ₹10 lakh — for established businesses needing significant capital for expansion, machinery, or infrastructure.

Apply through any bank branch, the Mudra portal (mudra.org.in), or the Jan Samman portal. No security, no collateral, no processing fee subsidy for eligible borrowers under certain government schemes.

Working Capital

Working capital is the money you need to run your business day to day — paying suppliers, covering inventory, and managing receivables. Unlike a term loan (which buys long-term assets), working capital loans are revolving credit facilities that fluctuate with your business cycle.

Overdraft (OD)

A pre-approved credit limit linked to your current account. You pay interest only on the amount drawn. Typically used to bridge short-term cash gaps. Interest is charged at 1–2% above the bank's base rate.

Cash Credit (CC)

A loan against your inventory or receivables. The bank advances up to a percentage of the value of your stock or invoices. Common in trading and manufacturing businesses. Similar to OD but secured against current assets.

Working Capital Loan

A term loan specifically for working capital purposes — usually repaid within 12 months. Suitable for seasonal businesses that need a cash injection ahead of a busy period (e.g., retail before festivals).

Loan Against Property

A Loan Against Property (LAP) uses commercial or residential property as collateral to borrow a lump sum — typically 50–70% of the property's assessed value. Because it is secured, interest rates are lower than unsecured business loans, ranging from 8.5% to 14% p.a. as of 2026.

When LAP makes sense: When you need a large sum for business expansion, equipment purchase, or bridging a cash flow gap, and you have property equity available. LAP is not for start-ups without established cash flows — banks want to see business viability before approving.

Risk note: If you default on a LAP, the bank can sell your property to recover the debt. Only take a LAP if your business cash flows are reliable enough to service the EMI comfortably.

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Frequently asked questions

What is the Mudra loan scheme and how does it work?

PMMY (Pradhan Mantri Mudra Yojana) offers three tiers: Shishu (up to ₹50,000), Kishore (₹50,000–₹5 lakh), and Tarun (₹5 lakh–₹10 lakh). Banks, MFIs, and NBFCs all lend under the Mudra brand. No collateral is required for any tier. Applications can be made at any bank branch or online via the Mudra portal.

What documents are needed for an MSME loan?

Typically: PAN and Aadhaar of the proprietor, business registration proof (GST, Shop Act, Udyam registration), last 2 years' ITR with financial statements, bank statements for 12 months, and property documents if collateral is offered. Requirements vary by lender and loan size.

What is the difference between a working capital loan and a term loan?

A term loan finances long-term assets — machinery, real estate — and is repaid over 3–10 years. A working capital loan finances day-to-day operations — inventory, receivables — and is typically revolving, repaid from incoming cash flow. Interest rates on working capital are usually higher.

Can a new business get a loan without collateral?

Yes — Mudra (Shishu/Kishore) and CGTMSE-backed loans do not require collateral. Banks may also offer unsecured business loans to new businesses with a good credit profile, though interest rates will be higher than secured options. SIDBI's Startup Siddhi scheme covers newer enterprises.

Sources: SIDBI (sidbi.in) · Mudra Yojana guidelines (mudra.org.in) · RBI MSME guidelines (rbi.org.in) · CGTMSE (cgtmise.in) · Income Tax Act 2025. Schemes verified 2026-10-08. Last reviewed by FinWiz24 Research Desk.