Types of Business Loans in India: Which One Fits Your Need
Short answer: The main types of business loans in India are term loans (short or long tenure), working capital limits (overdraft and cash credit), invoice or bill discounting including TReDS, equipment and machinery loans, loans against property, government-backed scheme loans such as Mudra, Stand-Up India and CGTMSE-guaranteed credit, and specialised loans for professionals. The right type depends on what the money is for and how quickly it will come back into the business.
Last updated: 13 October 2026.
This guide explains each type, who it suits, typical tenure and security, with ₹ examples, and links to our detailed guides.
The quick comparison
| Loan type | Purpose | Typical tenure | Security |
|---|---|---|---|
| Short-term term loan | One-time working capital need | 3–36 months | Often unsecured |
| Long-term term loan | Expansion, new unit, large projects | 3–10 years or more | Usually secured |
| Overdraft / cash credit | Day-to-day working capital | 12 months, renewable | Stock, receivables, property or unsecured |
| Invoice / bill discounting, TReDS | Cash against unpaid invoices | 30–180 days | The invoice itself |
| Equipment / machinery loan | Buy machines, vehicles, medical or IT equipment | 1–7 years | The equipment (hypothecation) |
| Loan against property | Large needs at lower rates | Up to 15 years or more | Residential or commercial property |
| Government scheme loans | Micro and small enterprises, first-generation and under-served entrepreneurs | Varies | Often collateral-free with a guarantee |
| Professional loans | Doctors, CAs and other professionals | 1–5 years | Often unsecured |
| Non-fund limits (bank guarantee, letter of credit) | Guarantee obligations to buyers or suppliers | Per transaction | Margin money or collateral |
1. Term loans
A lump sum repaid in EMIs. Short-term versions fund a stock purchase or a cash gap; long-term ones fund expansion. Example: ₹20,00,000 over five years at 11% gives an EMI of about ₹43,485 and total interest of about ₹6.09 lakh. Short-tenure options are covered in our guide to short-term business loans.
2. Working capital: overdraft and cash credit
A revolving limit you draw and repay as cash comes in; interest is charged only on the amount used. Banks set cash credit limits based on stock and receivables (drawing power), and review them every year. Read our explainer on overdraft loans for how daily interest works.
3. Invoice discounting and TReDS
If your buyers pay in 60–120 days, a financier can pay you now against the invoice, minus a discount. On TReDS platforms, invoices raised on large corporates and PSUs are financed by banks and NBFCs through an auction. Example: a ₹10,00,000 invoice due in 60 days, discounted at 10% a year, costs about ₹16,400. See bill discounting and TReDS.
4. Equipment and machinery loans
The asset you buy is hypothecated to the lender, which keeps rates lower than unsecured loans. Lenders typically fund a large share of the invoice value; you pay the margin. Doctors and clinics can see medical equipment loans.
5. Loan against property (LAP)
Pledge a residential or commercial property to get a larger amount for a longer tenure at a lower rate than unsecured loans. The trade-off is the risk to the property and longer processing (legal and technical checks). Example: ₹50,00,000 for 10 years at 10% gives an EMI of about ₹66,075.
6. Government-backed scheme loans
- Pradhan Mantri Mudra Yojana: loans to non-farm micro enterprises through banks, NBFCs and MFIs, in Shishu, Kishore and Tarun categories, with a Tarun Plus category for borrowers who have successfully repaid a Tarun loan.
- Stand-Up India: loans for greenfield enterprises set up by SC/ST or women entrepreneurs.
- PMEGP: a credit-linked subsidy for setting up new micro units.
- CGTMSE: a credit guarantee that lets eligible lenders give collateral-free loans to micro and small enterprises; the guarantee ceiling is ₹10 crore (CGTMSE).
Eligibility, limits and how to apply are in our government loan schemes guide. Most schemes need Udyam registration, which is free on the official Udyam portal.
7. Loans for professionals and specific sectors
Lenders design products for professionals with steady income: doctor loans, loans for chartered accountants and business loans for IT companies. These usually price off professional qualification and practice income.
8. Other options
- Gold loan for business use: fast and cheaper than unsecured credit; check your limit on the gold loan calculator.
- Business credit cards: useful for short purchases if paid in full; costly if revolved.
- Bank guarantees and letters of credit: non-fund facilities to secure tenders and supplier payments.
- Startup finance: early-stage firms with little vintage have fewer bank options; see loans for startups.
Example: how one business combines loan types
Illustrative example: a small packaging manufacturer with ₹6 crore annual turnover uses four facilities at once. A ₹40 lakh cash credit limit funds raw material and is drawn and repaid every month. Invoices to two large FMCG buyers are financed on TReDS, so it does not wait 90 days for payment. A five-year machinery loan, secured on the machine, funds a new printing line. A bank guarantee secures a supply tender. Each facility matches a different cash cycle, which keeps the total cost and the risk lower than funding everything with one expensive unsecured loan.
The lesson: start from your cash cycle. Map when money goes out and when it comes in, then pick the product that fits each gap. A lender or your CA can help you size the limits.
Know which loan type fits? Compare business loan offers from RBI-regulated lenders.
Secured or unsecured: what really changes
Unsecured business loans are faster and need fewer papers, but they cost more and the amount is capped by your turnover and credit history. Secured loans need valuation and legal checks, but they unlock larger amounts, longer tenures and lower rates. Whichever you choose, the promoter’s personal credit report is checked, and a default on a business loan can affect your personal score if you are a guarantor or co-borrower.
How to choose
- Match tenure to purpose: short-term needs with short-term credit, assets with long-term loans.
- Use security wisely: secured loans cost less but put assets at risk.
- Compare APR and terms: fees, penal charges, prepayment rules and repayment frequency.
- Check 2026 rules: for floating-rate loans sanctioned or renewed from 1 January 2026, RBI bars prepayment charges on business loans to individuals and micro and small enterprises by commercial banks and some other lenders (for certain lender types, only up to ₹50 lakh).
- Prepare documents early: see documents required for business loans.
For an overview of all business finance topics, visit our business loans hub.
Frequently asked questions
Which business loan is easiest to get?
Secured loans such as gold loans or loans against FDs are the easiest because the security reduces the lender’s risk. Among unsecured loans, approval depends on vintage, turnover, banking conduct and credit history.
What is the difference between a term loan and working capital?
A term loan is a lump sum repaid in fixed instalments. Working capital limits (overdraft, cash credit) let you draw and repay repeatedly, paying interest only on what you use.
Can a new business get a loan?
Yes, but options are narrower. Mudra, Stand-Up India, PMEGP and CGTMSE-backed loans are designed for new and small enterprises; promoters’ personal credit matters a lot.
Do I need Udyam registration?
It is not mandatory for every loan, but it is needed for most MSME benefits and government schemes, and registration is free.
Is a loan against property better than an unsecured business loan?
It is usually cheaper and allows larger amounts and longer tenure, but the property is at risk if you default and processing takes longer.
Sources
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.