Short answer: IT and software companies usually borrow against what they have most of: receivables and steady contracts, not land or machinery. The main options are working capital limits and overdrafts, invoice discounting (including TReDS for MSME sellers), term loans backed by the government’s CGTMSE guarantee, and equipment finance for laptops and servers. Lenders look for two to three years of filed returns, GST and bank data, healthy cash flow to cover EMIs, and Udyam registration if you are an MSME.
Last updated: 13 October 2026.
Why IT companies find borrowing different
A typical IT services firm, software product company or digital agency has an asset-light balance sheet. The biggest assets are people and unpaid invoices. That creates three common hurdles:
- Little collateral: Office space is usually rented and laptops depreciate fast, so traditional secured lending is harder.
- Long payment cycles: Corporate and overseas clients often pay in 45 to 90 days, while salaries are due every month.
- Lumpy revenue: Project-based firms see revenue swing as contracts start and end, which makes lenders cautious.
The answer is to pick products designed around cash flow and receivables, and to keep your books clean enough that a lender can see the business clearly. If you have been turned down before, common reasons banks reject business loans is a good diagnostic.
Financing options for IT and software firms
| Option | Best for | Typical security | Things to know |
|---|---|---|---|
| Cash credit / overdraft | Monthly salary and vendor gaps | Receivables, often with CGTMSE cover | Interest only on amount used; renewed yearly |
| Invoice discounting / TReDS | Clients that pay in 60–90 days | The invoice itself | TReDS is for MSME sellers with eligible corporate or PSU buyers |
| Term loan | Expansion, new office, product build | CGTMSE guarantee or collateral | Fixed EMIs; needs proof of repayment capacity |
| Equipment / laptop finance | Laptops, servers, networking gear | The equipment | Matches tenure to asset life |
| Short-term unsecured loan | One-off gaps | None | Higher rates; keep tenure short |
| Government schemes | Micro and small units, first-time borrowers | Varies | Mudra, CGTMSE, Stand-Up India and others |
Compare these in more depth in our types of business loans guide and the business loans hub.
Working capital against receivables
Say your firm bills ₹20 lakh a month and clients pay in 75 days. At any time about ₹50 lakh is stuck in receivables, while salaries of ₹14 lakh go out every month. A cash credit or overdraft limit, sized against receivables, bridges that gap. You pay interest only on what you draw.
Invoice discounting and TReDS
If your clients are large companies or public sector units, you can sell approved invoices on a TReDS platform such as RXIL and get paid in days instead of months, usually without collateral. Financiers bid on the invoice, so the cost depends on your buyer’s credit. Read our bill discounting and TReDS guide for how it works.
Collateral-free loans with CGTMSE
The Credit Guarantee Fund Trust for Micro and Small Enterprises guarantees loans that member lenders give to micro and small enterprises without collateral or third-party guarantees. The guarantee ceiling was raised from ₹5 crore to ₹10 crore from 1 April 2025, according to CGTMSE and a July 2026 PIB release. The same release notes that under a February 2026 RBI direction, scheduled commercial banks may not take collateral for MSE loans up to ₹20 lakh. Your lender pays the guarantee fee and may pass it on, so ask.
Other government-backed routes such as Mudra and Stand-Up India are explained on our government loan schemes page. Early-stage product companies should also read loans for startups.
Step 1: Register on Udyam
Most of the benefits above require Udyam registration. It is free, online and Aadhaar-based on the Udyam Registration portal. Current limits are shown below; most small IT firms fall into micro or small.
| Category | Investment up to | Turnover up to |
|---|---|---|
| Micro | ₹2.5 crore | ₹10 crore |
| Small | ₹25 crore | ₹100 crore |
| Medium | ₹125 crore | ₹500 crore |
Step 2: Check eligibility the way a lender does
- Vintage: Many lenders want at least two to three years of operations; some consider younger firms with strong contracts.
- Filed returns: ITRs, audited financials (where applicable) and GST returns that match your bank credits. Our note on loans for self-employed with ITR explains why this matters.
- Banking conduct: No cheque bounces, no overdrawn accounts, salaries paid regularly.
- Client concentration: If one client is 70% of revenue, expect questions. Signed MSAs and purchase orders help.
- Credit scores: Both the company’s commercial credit report and the promoters’ personal CIBIL scores are checked.
Step 3: Prove you can repay
Lenders look at the debt service coverage ratio (DSCR): cash available for debt payments divided by the EMIs. A term loan of ₹25 lakh at 12% for five years has an EMI of about ₹55,600, with total interest of about ₹8.4 lakh. If the business generates ₹1,20,000 a month in operating cash flow, DSCR is about 2.2, which most lenders find comfortable. Below about 1.25, approval gets hard.
Documents IT companies usually need
- KYC of the company and promoters (PAN, Aadhaar, incorporation certificate or partnership deed)
- Udyam and GST registration certificates
- ITRs and financial statements for two to three years; provisional figures for the current year
- 12 months of bank statements for the main business account
- Debtors ageing list and key client contracts or purchase orders
- Existing loan sanction letters and repayment schedules
The full checklist is in documents required for business loans.
Compare business loan and working capital offers from RBI-regulated banks and NBFCs for your IT firm.
Costs and terms to check
- APR, not just rate: Processing fees, documentation fees, guarantee fees and insurance add to the cost.
- Prepayment charges: RBI’s prepayment charges directions bar commercial banks from charging prepayment penalties on floating-rate business loans to individuals and micro and small enterprises sanctioned from 1 January 2026; other lenders have narrower rules.
- Covenants: Some limits require you to route a share of collections through the lender’s account.
- Tenure match: Do not fund long-term product development with a 12-month loan, or hardware with a seven-year one.
For small, quick needs such as a new batch of developer machines, compare laptop and equipment loans and short-term business loans.
Common mistakes IT founders make
- Using personal credit cards to fund payroll, which hurts the founder’s CIBIL score and costs far more than a working capital limit.
- Showing minimal profit in returns to save tax, then finding the business cannot qualify for a loan of the size it needs.
- Applying to many lenders at once instead of preparing one complete file and comparing offers.
- Ignoring GST and TDS mismatches; lenders reconcile these with bank credits.
Frequently asked questions
Can an IT company get a business loan without collateral?
Yes. Many lenders offer collateral-free working capital and term loans to micro and small enterprises backed by the CGTMSE guarantee, and invoice discounting on TReDS needs no collateral. Approval still depends on financials and repayment capacity.
Is Udyam registration mandatory for an IT company loan?
It is not required for every loan, but it is needed for most MSME benefits, including CGTMSE-backed lending and TReDS. Registration is free and online.
How much can a software company borrow?
Lenders size working capital limits on receivables and turnover, and term loans on cash flow. A common test is whether operating cash flow covers EMIs by at least about 1.25 times.
Can a new IT startup get a business loan?
It is harder without two or three years of returns. Options include a CGTMSE-backed loan from a bank, government schemes, invoice discounting once you have corporate clients, and personal-guarantee-based loans for founders.
Do lenders check the promoters’ CIBIL score?
Yes. For small and mid-sized companies, lenders check both the company’s commercial credit report and the personal credit reports of the directors or partners.
Sources
- CGTMSE: Credit Guarantee Fund Trust for Micro and Small Enterprises
- PIB: Credit Guarantee Scheme for MSEs (July 2026)
- Udyam Registration portal
- RBI: Pre-payment Charges on Loans Directions, 2025
- RXIL (TReDS platform)
Disclosure: FundsTiger (Gatimaan Finance Advisors Pvt. Ltd.) is a loan marketplace and lending service provider for RBI-regulated lenders. Aparampaar Finance Pvt. Ltd. (Omozing), one of those lenders, is a related party of FundsTiger. This article is general information, not financial advice. Read your loan agreement and KFS before you decide.