Business Loan

The seven kinds of business loan on LOANZ 360

Each type has its own page: MSME loan, unsecured business loan, secured business loan, startup loan, invoice discounting, merchant cash advance and business overdraft. Facilities for day-to-day operating needs are grouped under working capital finance; see also cash credit and overdraft facility.

A business loan rate reflects what the lender pays for its money, what it costs to run the loan, and how risky it judges you. Three things shape the result more than any other: whether the loan is secured, how long your business has traded, and how clean your cash flow looks in the bank statement. A secured loan against property usually costs less than an unsecured one, because the lender can recover from the asset.

Business loans come in fixed and floating forms. A floating rate follows a benchmark such as the repo rate and moves your EMI or tenure when it changes; a fixed rate stays put. Some quotes use a flat rate, where interest is charged on the original amount for the whole tenure, which costs more than the same number on a reducing basis. Read fixed vs floating interest rate, flat vs reducing interest rate and repo rate, EBLR and MCLR explained.

What moves the rate and the limit on a business loan

None of these is a promise. Ask for the Key Fact Statement and compare offers on the APR, not on the headline rate. See Key Fact Statement and APR.

Start from the purpose and the repayment source, not from the lender. Match the loan to the life of the thing you are paying for: a machine that lasts ten years should not be paid from a three-month limit, and a seasonal stock build should not be paid from a five-year loan.

Match your situation to a loan type

Machine purchases are covered on the machinery loan page. If two types fit, compare them on total cost, not on the monthly figure. A longer tenure lowers the instalment but raises the total interest. Try the EMI calculator with different tenures. Read flexi loan vs term loan and working capital loan guide.

A decision guide by borrower profile

• Business vintage: how long the business has operated and filed returns. Many lenders ask for a minimum period; the exact period is the lender's own.
• Turnover and profit: shown by GST returns, income tax returns and the profit and loss account.
• Banking behaviour: regular credits, few cheque returns, no long gaps and no heavy cash withdrawals that look like diverted funds.
• Credit score of the owners and of the business (CIBIL or another bureau): repayment history, current dues and how much of your limits you use.
• Existing obligations: lenders compare monthly repayments with business cash flow. See FOIR in the glossary.
• Constitution and age: proprietorship, partnership, LLP or company; owners are usually within an age band set by the lender.
• Industry and location: some sectors and premises are treated as higher risk by individual lenders.
• Security, where the loan is secured: the type, title and market value of the property or asset.

Partner lenders' own eligibility points for each product are shown on the product pages. Use the eligibility calculator, the FOIR calculator and the drawing power calculator for limits. LOANZ 360 compares your details with each lender's published criteria before an application goes anywhere, so you apply where you are likely to qualify.

Different loans use different logic. A term loan is sized on cash flow: what the business can repay each month after its costs. A working capital limit is sized on the business cycle: the money tied up in stock and receivables. A secured loan is sized on cash flow and also on the value of the asset. An invoice facility is sized on the invoices you discount.

Example one, a term loan on cash flow. A small manufacturer shows net profit plus depreciation and interest of ₹30,00,000 a year in its returns, which is ₹2,50,000 a month. Existing loan repayments are ₹60,000 a month. Suppose a lender wants the new EMI to leave a cushion, allowing total obligations of 50 per cent of that cash flow, or ₹1,25,000. The room for a new EMI is ₹65,000. At an example rate of 15 per cent a year over 4 years (an illustration, not a quote), an EMI of ₹65,000 supports a loan of roughly ₹23 lakh. This is an illustration of the logic only; lenders set their own methods.

Example two, a working capital limit. A trader buys stock for ₹40,00,000 a year and holds about 45 days of stock, which is roughly ₹5,00,000. Customers pay in about 30 days on sales of ₹60,00,000 a year, so receivables are about ₹5,00,000. The business funds part of this from its own money and some supplier credit. Lenders often size a limit on a share of the net working capital gap, so the limit might be a fraction of ₹10,00,000. Read working capital and drawing power.

Example three, invoice discounting. A supplier raises an invoice of ₹10,00,000 on a customer with 60 days' credit. A lender advances a share of the invoice, say 80 per cent, which is ₹8,00,000, and pays the balance, less its charges, when the customer pays. The share is lender policy and the customer's standing matters. See invoice discounting.

Documents usually asked for, by applicant profile

Keep the same name, address and business details on every paper. Mismatches between the GST certificate, the bank account and the returns are a common reason for delay. See loan documents and KYC and the professional loan page. Never send an unmasked Aadhaar number by chat or email.

• Define the purpose, the amount and the repayment source in one paragraph.
• Tidy your records: returns, GST filings, statements, and a short note on the business.
• Check your own credit report and the owners' reports. Checking your own score does not lower it.
• Compare your details with lenders' published criteria before you apply.
• Apply with KYC, business and financial papers.
• The lender verifies: credit reports, a visit to the premises, a look at statements and, for secured loans, a valuation and legal check.
• The lender issues a sanction letter with the amount, rate type, tenure, security and conditions. Read the Key Fact Statement and every condition.
• You sign the agreement and any security or guarantor documents.
• The lender disburses into your own bank account. Revolving limits are set up for you to draw as needed.

Stages are application, verification, sanction, documentation and disbursal. Time depends on the loan type, on whether security is involved and on the completeness of your papers; none is promised. Lenders often send questions about bank-statement entries, so be ready to explain large credits and debits.

Business loan pricing has several parts. The headline rate is only one. Ask the lender for the Key Fact Statement and compare offers on the APR, which brings the main costs into a single yearly figure.

Costs on a business loan, all set by the lender unless stated

Prepayment on business loans. Under the Reserve Bank of India's Pre-payment Charges Directions, 2025, regulated lenders may not levy pre-payment charges on floating-rate loans to individuals for non-business purposes, and the directions apply to loans sanctioned or renewed on or after 1 January 2026 (RBI notification). For floating-rate business loans to individuals and micro and small enterprises, the bar also applies to commercial banks (other than small finance banks and regional rural banks), upper-layer NBFCs and some other large lenders. At small finance banks, regional rural banks, some co-operative banks and middle-layer NBFCs it applies up to ₹50 lakh. Fixed-rate loans and other cases follow the lender's own policy, and any charge must be in your agreement. Read the Key Fact Statement before you sign and ask what an early exit costs.

Interest can be fixed or linked to a benchmark. A flat rate looks cheaper than it is. Always ask for the Key Fact Statement and compare offers on the APR. Try the rate comparison calculator and the prepayment calculator. See loan prepayment and foreclosure.

Interest on a loan used for business is generally treated as a business expense, subject to the tax law's conditions, and the way it is treated depends on whether the money is used to run the business or to buy assets. Principal repaid is not an expense. The Income-tax Act, 2025 has changed section numbers, so none are quoted here. Keep a clear record of how loan money was used, route it through the business account, and confirm treatment with the Income Tax Department or an adviser.

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was set up by the Ministry of MSME and SIDBI. It does not lend. It provides credit guarantee cover to member lenders who give collateral-free loans to eligible micro and small enterprises, covering term loans and working capital. Its site states that the ceiling of credit guarantee coverage is ₹10 crore (CGTMSE). Whether your loan can use this cover is decided by the lender, so ask. For other schemes see government loan schemes, PMEGP and MUDRA.

What to compare across two business loan offers

Read bank vs NBFC business loan to see how the two kinds of lender differ, and use the Key Fact Statement to compare them. LOANZ 360 does not rank lenders; see how we rank offers.

• Borrowing for the wrong period. Funding a long-term asset from a short limit forces repeated renewals and strains cash flow.
• Applying to many lenders in a few days. Each lender check can lower your credit score. Compare eligibility first, then apply where you fit.
• Letting business and personal money mix in one account. Lenders read the statement; mixing makes turnover hard to prove.
• Under-reporting sales to save tax, then asking a lender to lend on a higher figure. Lenders can only lend on what the returns show.
• Choosing by monthly instalment alone. Check the total cost, fees and the APR.
• Ignoring the sanction terms. Renewal, review, security and end-use conditions bind you after disbursal.
• Missing small dues. A late payment on a card or an old loan can drop your score just before you apply.
• Standing as guarantor or pledging property without understanding the consequences.

For causes of refusal and fixes see business loan rejection reasons.

Warning signs on business loan offers

Read digital lending safety.

A missed payment on a business loan brings penal charges, a negative report to the credit bureaus on the business and on any guarantor or owner, and, if it continues, classification of the account as a non-performing asset. On revolving limits a lender can freeze or recall the limit. For secured loans the lender can use the SARFAESI Act to take possession of the security after notice. A personal guarantor can be called on to pay. See NPA and SMA.

• Talk to the lender before the due date and ask for a restructure, a moratorium or a change in tenure, in writing.
• If a customer's payment is delayed, tell the lender early; do not wait for the account to turn overdue.
• Keep separate records so you can show the cause of a cash gap.
• Seek advice if you are offered a one-time settlement, and see how it will appear in your report.

Read missed EMI consequences, loan settlement vs closure and borrower rights and grievance.

• Ask for a foreclosure statement that shows the exact amount for a stated date.
• Pay through the lender's account and keep the receipt.
• Collect the closure letter and no objection certificate (NOC).
• Collect any original documents, post-dated cheques and security papers; ask for the release of any charge on assets or property.
• For vehicles and machinery, ask for the release of hypothecation. For property, ask for the release of the mortgage.
• Cancel EMI mandates and revolving-limit authorisations you no longer need.
• Check your credit report after 30 to 45 days to see the facility shown as closed.

Details: how to get an NOC after loan closure.

• You share your business details once and agree to a clear, item-by-item consent notice. Nothing is checked or shared without your consent, and you can withdraw consent as easily as you gave it.
• Before an application goes to any lender, your details are compared with each partner lender's published eligibility criteria, so you apply only where you are likely to qualify. This helps avoid unnecessary credit enquiries; too many lender checks in a short time can lower your score.
• Our team prepares a credit assessment summary before the file reaches a lender.
• You choose where to apply. One advisor follows your file through documents, lender questions, sanction and disbursal, and you track status in your account.
• The lender decides, prices and pays out; the loan is paid into your own bank account.

Related reading: working capital finance, MSME loan, startup loan, machinery loan, MSME loan guide, bank vs NBFC business loan, business loan for startups, business loan rejection reasons, bill discounting guide, MSME, working capital, APR, key fact statement, TReDS, the drawing power calculator and the EMI calculator.

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