Small Business Loan

What Is a Small Business Loan?

Small business loans are offered to small businesses or MSMEs to fund their working capital and other financial needs. These loans are offered by private and public sector banks and Non-Banking Financial Companies (NBFCs) to help small businesses fund, expand or grow their business units.

Small Business Loan Interest Rate

Small business owners can apply for a business loan on Tax Intelligence with interest rates starting from 13%. However, the final rate of interest depends on multiple factors, including the credit profile, loan amount, loan tenure and the business profile of the borrower.

Eligibility Criteria for Small Business Loans

Most lenders have prescribed their own set of eligibility guidelines for small business loans. However, the common set of eligibility criteria is listed below:

• Age Criteria: Minimum 18 years and maximum 65 years on maturity
• Business Tenure: Minimum 2 years (in profits)
• Business Turnover: Depends on the lender
• Credit Score: Preferably above 750, with a strong repayment history
• Good financial history with no defaults
• An Indian citizen with no criminal records
• Applicant should have a self-owned house or shop

Types of Small Business Loans

• Short-term Loans: Term loans (short-term loans) can be availed for smaller amounts and shorter repayment tenure with no collateral required.
• Working Capital Loans: Loans to meet the day-to-day operational needs of a business and to manage business cash flow.
• Mudra Loans: Working capital loans offered to SMEs and MSMEs to expand their existing business, buy equipment & machinery or start a new business. Minimum loan amount has no limit, whereas the maximum loan amount can go up to Rs. 20 lakh.
• Startup Loans: Startup loans are offered to launch a new business or enterprise with limited capital investment, starting from Rs. 1 lakh to Rs. 10 lakh and more.
• Business Loans for Women: Discounted and competitive interest rates are offered to women entrepreneurs, with loan amounts that are affordable to repay.

Government Schemes for Small Businesses

The government has come up with various small business loan schemes and initiatives for the MSME sector and small businesses, such as Mudra Loan, Prime Minister’s Employment Generation Programme (PMEGP), subsidy scheme for term loans, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), SIDBI Make in India Loan for Small Enterprises (SMILE), and so on.

1. Pradhan Mantri Mudra Yojana (PMMY)

Provides loans up to Rs. 20 lakh to non-corporate, non-farm micro and small enterprises under the MUDRA framework.

2. SIDBI SMILE (Soft Loan Fund for MSMEs)

Offers soft loans to MSMEs to support establishment and expansion by addressing debt–equity requirements.

3. Swarojgar Credit Card

Enables simplified and timely access to credit for small entrepreneurs and self-employed individuals.

4. PSB Loans in 59 Minutes

Facilitates quick, digital in-principle approval for business loans up to Rs. 5 crore within 59 minutes.

5. Credit Guarantee Scheme for Startups (CGSS)

Provides credit guarantee cover to lenders to support funding for eligible startups.

6. Startup India Seed Fund Scheme

Extends early-stage financial support to startups for validation, prototyping, product trials, market entry, and commercialisation.