Short answer: A business loan in India can be a term loan, working capital limit, invoice finance, equipment loan or a government-backed scheme loan such as Mudra. Banks and RBI-registered NBFCs decide mainly on business vintage, turnover and banking, GST and ITR records, your credit report, and existing EMIs. Small units can often borrow without collateral under CGTMSE-guaranteed or Mudra loans. Compare the Key Fact Statement (KFS), not just the headline rate.
Last updated: 13 October 2026.
This hub explains how business borrowing works in 2026, what lenders check, and which FundsTiger guide to read next for your situation.
Main types of business loans
Choosing the right product matters more than chasing the lowest advertised rate. A short-term cash gap and a five-year machine purchase need very different loans. Our detailed guide to types of business loans covers each option; the table below is a quick map.
| Loan type | Typical use | Usual tenure | Collateral |
|---|---|---|---|
| Term loan | Expansion, fit-out, new branch | 1 to 7 years | Often secured; unsecured for smaller amounts |
| Working capital (cash credit / overdraft) | Stock, salaries, day-to-day gaps | 12 months, renewable | Stock and receivables, sometimes property |
| Short-term business loan | Seasonal stock, a single large order | 3 to 18 months | Usually unsecured |
| Invoice / bill discounting, TReDS | Cash locked in unpaid invoices | 30 to 180 days | The invoice itself |
| Equipment or vehicle loan | Machines, medical equipment, commercial vehicles | 2 to 7 years | The asset being bought |
| Government-scheme loans (Mudra, Stand-Up India, PMEGP) | Start-ups and micro units | Up to 7 years | Collateral-free in many cases |
Read more: short-term business loans, bill discounting and TReDS for MSMEs, and government loan schemes.
Who can get a business loan
Proprietors, partnerships, LLPs and private limited companies can all borrow. Self-employed professionals such as doctors and chartered accountants often get separate professional loans with simpler paperwork. Most lenders look for:
- Business vintage: commonly 2 to 3 years for unsecured loans; start-ups usually need a scheme loan, collateral or a strong promoter profile.
- Turnover and profit: shown through GST returns, bank statements and ITRs with audited or CA-certified financials.
- Banking behaviour: regular credits, few cheque bounces and no frequent overdrawing.
- Credit history: the promoter’s personal score and the firm’s commercial report. See our credit and CIBIL score hub.
- Udyam registration: free on the official Udyam Registration portal and needed for most MSME benefits.
If you are still pre-revenue, start with our guide to loans for startups in India.
How much can a business borrow? A worked example
Lenders size unsecured business loans on cash flow. A common rule of thumb is that total EMIs should not take more than about half of your average monthly surplus, though each lender sets its own policy.
Example (illustrative): a retailer’s bank statements show average monthly net inflows of ₹3,00,000 and existing EMIs of ₹40,000. If a lender allows EMIs up to 50% of inflows, the room left is ₹1,50,000 minus ₹40,000, or ₹1,10,000 a month. At 18% a year over 36 months, the EMI is about ₹3,615 per ₹1 lakh, so the lender might consider roughly ₹30 lakh (₹1,10,000 ÷ ₹3,615 × ₹1 lakh). Actual offers will be lower if GST turnover, ITR profit or the credit report do not support it.
Use the EMI calculator to test different amounts and tenures before you apply.
Collateral-free options for small businesses
Micro and small enterprises often cannot pledge property. Three routes help:
- Mudra loans up to ₹20 lakh through banks, NBFCs and MFIs (Shishu up to ₹50,000, Kishor up to ₹5 lakh, Tarun up to ₹10 lakh, Tarun Plus up to ₹20 lakh for those who repaid a Tarun loan), per the Government of India note on PMMY (April 2026).
- CGTMSE guarantee: the trust guarantees collateral-free credit to micro and small enterprises, with the ceiling now ₹10 crore per borrower according to CGTMSE. The lender pays an annual guarantee fee that may be passed on to you.
- Invoice finance: if your buyers are large companies or PSUs, TReDS lets you sell approved invoices at a discount instead of taking a loan.
Documents you will usually need
Keep these ready to avoid delays; the full checklist is in documents required for business loans.
- PAN and Aadhaar of promoters (see Aadhaar for loans and KYC), plus the business PAN.
- Udyam certificate, GST registration, partnership deed or incorporation documents.
- 12 months of bank statements for all business accounts.
- ITRs and financial statements for the last 2 to 3 years.
- GST returns for the last 12 months.
- Existing loan sanction letters and repayment schedules, if any.
Costs to compare beyond the interest rate
Since October 2024, RBI requires every regulated lender to give a KFS for retail and MSME term loans. It shows the Annual Percentage Rate (APR), which includes processing fees and other charges, and the lender cannot later levy a fee that is not in the KFS without your consent (RBI KFS circular). Also check:
- Processing fee and documentation charges.
- Foreclosure or part-prepayment charges. For floating-rate loans sanctioned or renewed from 1 January 2026, RBI’s prepayment directions stop many lenders from charging these on loans to individuals and micro and small enterprises.
- Penal charges for late payment (RBI requires these to be a reasonable charge, not added to the interest rate).
- Insurance bundled with the loan; it should be optional and shown separately.
Our guide to flat rate vs reducing balance rate shows why a ‘flat’ 12% can cost far more than a reducing 12%.
Why business loan applications get rejected
Common reasons include low or inconsistent banking credits, a mismatch between GST turnover and ITR income, recent cheque bounces, high existing EMIs, short business vintage and overdue accounts in the promoter’s credit report. Fix the data problems first, then reapply. Several rejections in a short span add hard enquiries, so apply selectively. If you have personal credit card or app loans weighing on your profile, our EMI consolidation guide explains how to simplify them.
Compare business loan offers from RBI-regulated banks and NBFCs in one place.
Related guides in this hub
- Small business loans: a practical guide
- Business loans for IT companies
- Medical equipment loans
- Why your bank rejected your business loan application
- Loans for self-employed with ITR
- Check whether an NBFC is RBI-registered
Frequently asked questions
Can I get a business loan without collateral?
Yes, many unsecured business loans and scheme loans need no collateral. Mudra loans are collateral-free, and lenders can cover micro and small enterprise loans under the CGTMSE guarantee. Larger amounts or weaker profiles may still need security.
Is GST registration compulsory for a business loan?
Not always. Very small businesses below the GST threshold can borrow using bank statements and ITRs, and Mudra Shishu loans need minimal records. However, GST returns make it much easier for lenders to verify turnover.
How long does a business loan take?
Unsecured loans with complete documents can be approved in a few days. Secured loans and scheme loans take longer because of property checks, project appraisal and guarantee cover.
Does my personal CIBIL score matter for a business loan?
Yes. For proprietorships, partnerships and small companies, lenders check the promoters’ personal credit reports along with the firm’s commercial report. Overdue personal loans or cards can lead to rejection.
Can I prepay a business loan early?
Usually yes. Check the KFS for foreclosure terms. Floating-rate loans to individuals and micro and small enterprises sanctioned from 1 January 2026 are largely free of prepayment charges under RBI rules; fixed-rate loans may still carry a fee.
Sources
- RBI circular on Key Fact Statement for loans (April 2024)
- Government of India note on PMMY (Mudra), April 2026
- CGTMSE
- Udyam Registration portal
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.