6 best small business loans in India

Establishing your own business empire is a lifelong ambition for plenty of people around us. Some put in all their resources to get to their target, while some lack the resources to begin their venture.


These people don’t go unrecognized since the government and the Reserve Bank of India have set up several loan schemes to provide small businesses with a kickstart as these businesses contribute majorly to GDP growth in India.


To avoid missing out on excellent chances to put your entrepreneurial skills to the test and set forth for profitable use, here are the six best small business loan schemes currently available in India.


These business loans have interest rates that are within a reasonable range, so they should be able to help your business get the backing it needs at a low cost.


Here are the 6 best small business loans in India:

1. MSME loan


MSME (Micro, Small, and Medium Enterprises) loans are a type of credit facility offered to startups, entrepreneurs, and small and medium-sized enterprises.


This type of loan provides you with working capital, which you can use for a variety of things, including paying your employees' salaries, buying new equipment, adding to your inventory, or expanding your business. 


Banks and NBFCs, according to the RBI, can offer interest rates on MSME loans starting at 7.65% p.a. The loan amount approved can be a minimum of Rs. 50,000 and can rise up to some crores.


The maximum amount of time in which the loan has to be repaid is 15 years.


If you want to secure an MSME loan, you must meet the lenders' eligibility criteria, which involve being between the ages of 25 and 55, having a business that's been in operation for at least 3 years, and having a credit score of 750 or higher.

2. Mudra loans


Pradhan Mantri MUDRA Yojana (PMMY) also provides small business loans in India.


The amount is up to Rs. 10 lakhs for individuals, MSMEs, and self-employed professionals aiming to boost the confidence of aspiring entrepreneurs as well as existing small businesses in expanding their operations.


The Mudra scheme provides loans to non-corporate, non-farming micro, small, and medium enterprises in rural and urban India.


If you are a small manufacturer, a fruit or vegetable dealer, a shopkeeper, or an individual occupied in agriculture, and between the ages of 18 and 65, with no past loan defaults with any financial institution and with good repayment history, you are eligible for the PMMY scheme.


Banks/NBFCs do not require any security from borrowers under this scheme, and repayment terms are available for up to 5 years with no to minimal processing fees and foreclosure charges.

3. PSB loans


Another small business loans in India is the PSB loan.


PSB Loans in 59 Minutes, as the name suggests, is a government-run scheme that will help you avail your working capital requirements by getting you an in-principle business loan approval within an hour.


It simplifies the process of obtaining MSME loans and assists you in selecting the best-suited, low-interest, flexible-duration MSME loan by obtaining the widest range of offers from over 21+ public and private sector banks and NBFCs with a single application.


Quick, safe, and secure loan approvals and a reasonable cost of borrowing are its main features.


To apply for this loan, you must create a user profile on the PSB Portal, have a valid GST number linked to your business, and keep your cash flow statements, and income tax returns ready when applying for a loan through the portal.

4. CGMSE


Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was formed mutually by the Ministry of Micro, Small, and Medium Enterprises (MSME), the Government of India, and the Small Industries Development Bank of India (SIDBI).


It was set up with the intention of facilitating the flow of institutional credit to small businesses that were in the process of starting up. Manufacturing and service industries, including retail trade, are among the businesses that can benefit from this lending program.


On an outstanding basis, a credit facility of up to 2 crores can be covered for micro and small enterprises.


To be eligible to apply for this loan, you must be in the age group between 25 and 65 years, have owned a business for a minimum of 3 years, and have filed income tax returns for the business for a minimum of 1 year.

5. CLSS


The Credit Linked Capital Subsidy Scheme (CLCSS) aims to provide upfront capital and financial assistance to SSIs (Small Scale Industries) in rural and urban areas.


The primary goal of CLCSS is to provide capital for the advancement of technology and production equipment used by SSIs.


This scheme covers the following subsectors: Drugs and Medicines (Pharmaceuticals), Electrical Accessories, Medicinal, Aromatic Plants, Biotech industries, Steel Furniture, Wooden Furniture, Communication Tools, Information Technology-Hardware, Readymade Garments, Agricultural equipment, and Poultry equipment.


In order to be considered eligible for this program, you will need to submit your application as either a sole proprietorship, partnership firm, co-operative, or private/public limited corporation.

6. Standup India


The Stand-Up India initiative seeks to promote entrepreneurship among women, scheduled castes, and tribes.


The Department of Financial Services (DFS), which is part of the Ministry of Finance in the Indian government, is the primary driving force behind the scheme.


For the purpose of establishing a greenfield business, the Stand-Up India Scheme makes it possible for at least one borrower from a scheduled caste (SC) or scheduled tribe (ST) and at least one woman from each bank branch to receive bank loans ranging from 10 lakh to 1 crore. 


This company could be in the manufacturing or service industries, or it could be in the trading business.


This loan program is only available for green-field projects, and the eligibility requirements state that the applicant must be a woman, a member of a socially or economically disadvantaged group, or both. In addition, the applicant must be at least 18 years old.


Suggested read - How to raise capital for a startup in India?

Eligibility criteria for getting best small business loans in India


1. Credit history


While applying for a business loan for small business in India, check your business’s credit history. Various online tools can help you calculate your credit score and give insight into your credit history.


Credit history includes parameters like previous credit amount, interest rate, repayment history, age of the business, etc.


Make sure that you don’t default in repaying the interest or the principal amount at any given point of time, or else delays in these payments can have severely bad effects on your credit history.


2. Minimal annual income


When you apply for an SME business loan India, institutions don’t just randomly give out the credit amount you request.


They ensure that your minimal annual income is in coherence with your ability to repay the credit amount you are asking for.


If you request an immensely high amount that is way above your business revenue, it would show that you are credit greedy and wouldn’t be able to repay the credit amount.


So make sure that the loan amount you ask for is within your annual revenue and capacity to repay.


3. Business history


While judging if your business is creditworthy, loan-giving institutions also look at your business history.


This includes the date of establishment, years your business has been profitably running in the market, annual sales and revenue generation, business transactions of every year, etc.


Be aware that your business history should look profitable.

An alternative: Quick line of credit for small business from Volopay


Since the country's economy relies heavily on the small business sector, a number of issues challenge small businesses. To thrive, small business owners must have a strong desire to succeed and the ability and resources to do so. 


An alternative to getting small business loans in India from banks is the all-in-one spend management platform Volopay. Volopay is a specially curated platform catering to all contemporary businesses' financial needs.


The business credit line offered by Volopay is an interest-only charge on unpaid balances, meaning you have to pay interest only on that amount that is not paid.


Moreover, this business line of credit gives you access to funding up to an approved maximum amount. This can be a great short-term funding option for businesses that want to boost their current cash flow and instil more flexibility in the business.


Curious to know about BNPL model for business?


Check this out - Pros and cons of Buy Now, Pay Later models for small business

Get an easy and flexible credit line to help grow your business