10 Best Loans for Small Businesses in India 2024
For small businesses in India, securing the right financial resources is essential to ensure long-term success and scalability. The country’s business loan landscape offers a range of options tailored to different business needs, each with unique benefits, eligibility requirements, and interest rates. In this guide, we’ll walk you through the 10 best loans for small businesses in India 2024, covering everything from government initiatives to private banking solutions and more.
Whether you’re looking to expand your operations, purchase new equipment, or manage cash flow, this guide will help you make an informed decision.
Best Loans for Small Businesses in India 2024
| Loan Type | Purpose | Interest Rate (Approx) | Eligibility | Loan Amount |
|---|---|---|---|---|
| MUDRA Loan | Working capital, expansion | 7%-14% | MSMEs, small entrepreneurs | Up to ₹10 lakhs |
| MSME Loan by SIDBI | Business expansion, equipment | 8%-12% | MSMEs | ₹10 lakhs to ₹1 crore |
| Start-up India Loan | New business ventures | 8%-10% | New startups, innovative businesses | ₹10 lakhs to ₹5 crore |
| CGTMSE Loan | Collateral-free business loan | 10%-15% | MSMEs, new and existing businesses | Up to ₹2 crores |
| Bank Overdraft | Short-term working capital | 10%-20% | Existing bank customers | Based on bank policies |
| Business Loan by NBFCs | Expansion, machinery, operations | 12%-24% | Small to medium enterprises | ₹1 lakh to ₹5 crore |
| Term Loan | Long-term business investments | 9%-15% | SMEs with stable financials | ₹1 lakh to ₹10 crores |
| Line of Credit | Flexible cash flow management | 10%-18% | Good credit history | Flexible, up to ₹1 crore |
| Equipment Financing | Purchasing machinery/equipment | 9%-13% | Manufacturing and service industries | Up to ₹5 crores |
| Invoice Financing | Short-term credit, cash flow | 12%-20% | SMEs with outstanding invoices | Based on invoice amount |
10 Best Loans for Small Businesses in India 2024
1. Pradhan Mantri MUDRA Yojana (PMMY)
The Pradhan Mantri MUDRA Yojana (PMMY) is a government initiative providing financial support to small entrepreneurs and MSMEs. It offers three loan categories — Shishu (up to ₹50,000), Kishor (up to ₹5 lakhs), and Tarun (up to ₹10 lakhs), each suited to different business needs.
Success Story: A Local Store’s Transformation
Ramesh, a local shop owner, used a ₹2 lakh MUDRA loan to expand his grocery store, ultimately increasing his customer base and boosting revenue by 30%.
Features and Eligibility:
- Loan Amount: Up to ₹10 lakhs.
- Interest Rate: 7%-14%.
- Eligibility: MSMEs and entrepreneurs in manufacturing, trading, and services sectors.
2. MSME Loans by SIDBI
SIDBI loans are ideal for small businesses looking to grow. SIDBI (Small Industries Development Bank of India) loans offer attractive interest rates, a quick approval process, and are available to businesses in manufacturing and service sectors.
Real-Life Example: A Textile Business Expansion
Anjali, a textile entrepreneur, received a ₹15 lakh SIDBI loan to invest in new sewing machines, helping her scale up production and fulfill larger orders.
Features and Eligibility:
- Loan Amount: ₹10 lakhs to ₹1 crore.
- Interest Rate: 8%-12%.
- Eligibility: MSMEs with sound financial history.
3. Start-up India Loan
The Start-up India Loan supports new entrepreneurs, providing capital for innovative projects. Start-ups with potential for growth, particularly in tech and sustainability, are eligible for this funding.
Case Study: Tech Start-up in Agriculture
Priya, who created an app to streamline farming logistics, secured ₹25 lakhs under Start-up India, enabling her to roll out pilot programs and achieve profitability within 18 months.
Features and Eligibility:
- Loan Amount: ₹10 lakhs to ₹5 crore.
- Interest Rate: 8%-10%.
- Eligibility: New, innovative start-ups.
4. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Loan
CGTMSE offers collateral-free loans up to ₹2 crore, ideal for small businesses without significant assets. CGTMSE loans are backed by government guarantees, making them lower-risk options for banks.
Success Story: Expanding a Small Manufacturing Business
A small-scale manufacturer secured ₹1 crore under CGTMSE, enabling them to purchase equipment and expand their product line without putting up collateral.
Features and Eligibility:
- Loan Amount: Up to ₹2 crore.
- Interest Rate: 10%-15%.
- Eligibility: Micro and small businesses with limited assets.
5. Bank Overdraft
A bank overdraft provides short-term working capital for businesses with bank accounts. It allows for flexible cash withdrawals within an approved limit.
Example: A Seasonal Business Covering Cash Flow Gaps
A seasonal apparel store utilized a bank overdraft to stock up for peak season, maintaining cash flow while avoiding the financial strain of large upfront payments.
Features and Eligibility:
- Loan Amount: Based on bank policies.
- Interest Rate: 10%-20%.
- Eligibility: Existing bank customers.
6. Business Loans by NBFCs
Non-Banking Financial Companies (NBFCs) provide business loans to SMEs who may not qualify for traditional bank loans. They offer quick approval, though interest rates tend to be higher.
Real-Life Example: Restaurant Expansion with NBFC Loan
Rahul, a restaurateur, used a ₹10 lakh NBFC loan to open a second location. Despite the higher interest rate, quick approval allowed him to take advantage of a prime location.
Features and Eligibility:
- Loan Amount: ₹1 lakh to ₹5 crore.
- Interest Rate: 12%-24%.
- Eligibility: SMEs with moderate credit scores.
7. Term Loan
Term loans are long-term business loans with structured repayments, suitable for major investments like property purchases or significant equipment.
Case Study: Real Estate Investment for a Manufacturing Unit
A manufacturer took a ₹25 lakh term loan to purchase an industrial property, allowing them to expand operations and save on rental costs.
Features and Eligibility:
- Loan Amount: ₹1 lakh to ₹10 crores.
- Interest Rate: 9%-15%.
- Eligibility: Businesses with stable revenue.
8. Line of Credit
A line of credit gives small businesses access to flexible capital without the commitment of a full loan. They only pay interest on the funds they withdraw.
Example: Construction Business Using a Line of Credit
A construction firm used a line of credit to manage project expenses without the need for multiple loans, improving cash flow efficiency.
Features and Eligibility:
- Loan Amount: Up to ₹1 crore.
- Interest Rate: 10%-18%.
- Eligibility: Established credit history.
9. Equipment Financing
Equipment financing helps businesses purchase machinery without straining cash flow. The equipment itself often serves as collateral for the loan.
Success Story: A Printing Business’s New Machinery
A printing business secured equipment financing to buy advanced printers, increasing production and cutting operational costs.
Features and Eligibility:
- Loan Amount: Up to ₹5 crores.
- Interest Rate: 9%-13%.
- Eligibility: Businesses in manufacturing or services.
10. Invoice Financing
Invoice financing provides businesses with funds based on unpaid invoices, ensuring they have working capital while waiting for customer payments.
Case Study: A Furniture Maker Secures Cash Flow
A furniture business received funds against outstanding invoices, enabling them to pay suppliers and continue operations without delays.
Features and Eligibility:
- Loan Amount: Based on invoice value.
- Interest Rate: 12%-20%.
- Eligibility: SMEs with unpaid invoices.
11. Working Capital Loan
Working capital loans are short-term loans designed to help small businesses cover their day-to-day operational expenses, such as rent, salaries, and utilities. This type of loan is ideal for businesses that need funds to manage cash flow during slow sales periods or while awaiting payment from clients.
Example: A Seasonal Craft Business Maintaining Operations Year-Round
Jyoti, who runs a seasonal craft business, faced cash flow challenges during the off-season. With a ₹5 lakh working capital loan, she was able to pay her employees, restock inventory, and cover operating costs until demand increased. This steady cash flow allowed her business to stay prepared and competitive year-round.
Features and Eligibility:
- Loan Amount: ₹50,000 to ₹5 crore.
- Interest Rate: 11%-16%.
- Eligibility: Small to medium businesses with consistent revenue streams.
Unique Benefit:
- Working capital loans are generally unsecured, meaning they don’t require collateral, making them accessible for businesses with limited assets.
Conclusion
Securing the right funding can make a significant difference in the success of a small business. Each of these 10 loan options offers unique benefits, helping Indian SMEs meet their goals. By understanding the specifics of each loan type, you can make informed financial choices that best support your business journey.
Frequently Asked Questions (FAQs)
- What is the best loan for a small business without collateral?
- The CGTMSE loan is a top choice for businesses needing collateral-free financing.
- How can I apply for a MUDRA loan?
- MUDRA loans can be applied for through nationalized banks, regional rural banks, or other authorized lenders.
- Is a line of credit suitable for seasonal businesses?
- Yes, a line of credit provides flexible cash flow, which is ideal for seasonal revenue fluctuations.