What is a Business Loan?
Business loan is a credit facility offered to self-employed individuals, self-employed professionals, private companies and partnership firms, MSMEs, etc. for financing their working capital requirements, capital expenditure requirements and other business related activities.
Business Loan Interest Rate
Business Loan interest rates may vary from lender to lender depending on the credit profile of the applicant, nature of the business, loan facility availed by the applicant and the type of collateral/security pledged by the borrower.
Business Loan offered by Top Banks & NBFCs in India
Interest rates offered by top Business Loan lenders are mentioned below.
| Bank/NBFC/Fintech | Interest Rates |
| HDFC Bank | 10.75% – 22.50% p.a. |
| IIFL Finance | Up to 36% p.a. |
| FlexiLoans | 1% per month onwards |
| ZipLoan | 1% – 1.5% per month (Flat) |
| ICICI Bank | Up to 17% p.a. |
| Axis Bank | 17.15% p.a. onwards |
| Indifi Finance | 1.5% per month onwards |
| Kotak Mahindra Bank | 16% p.a. onwards |
| RBL Bank | 14%-26% p.a. |
| Lendingkart Finance | 1.25% per month onwards |
| Tata Capital Finance | 12% p.a. onwards |
| NeoGrowth Finance | 15%-40% p.a. |
| Hero FinCorp | Up to 30% p.a. |
Note: Business Loan Rates are updated as of 11th November 2024.
HDFC Business Loan
HDFC Bank offers secured and unsecured business loans @ 10.75% p.a. onwards for loan amount of up to Rs 3 crore and for tenure of up to 7 years to self-employed individuals and business enterprises.
| Interest Rate | 10.75% p.a. onwards |
| Loan Amount | Up to Rs 3 crore |
| Tenure | Up to 7 years |
| Processing Fee | Up to 2% of loan amount |
ICICI Bank Business Loan
ICICI Bank offers both secured and unsecured business loans to importers, exporters, new entities, businesses not having audited financials, etc. ICICI business loan interest rates may go up to 17% p.a. for tenure of up to 7 years.
| Interest Rate | Up to 17% p.a. |
| Loan Amount | Up to Rs 10 crore |
| Tenure | Up to 7 years |
| Processing Fee | Up to 2% of loan amount |
Axis Bank Business Loan
Axis Bank business loan interest rates start from 17.15% p.a. onwards for tenure of up to 15 years. Prospective business loan borrowers of Axis Bank can borrow loan amounts of up to Rs 10 crore. The bank also offers bills of exchange and Letter of Credit to its business loan applicants.
| Interest Rate | 17.15% p.a. onwards |
| Loan Amount | Up to Rs 10 crore |
| Tenure | Up to 15 years |
| Processing Fee | Up to 2% of loan amount |
Business Loan EMI Calculator
Applicants can use the Business Loan EMI Calculator given below to calculate the EMIs and total interest cost payable throughout the loan tenure depending on the interest rate, loan amount and loan tenure offered by the lender.
Monthly EMI ₹ 15,622
Total Amount Payble ₹ 5,62,395(Principal + interest)
Principal Amount ₹ 5,00,000
Total Interest Payble ₹ 62,395
How to Get a Business Loan Online?
Individuals, groups of individuals and entities can apply for a business loan online directly through the official website of banks and NBFCs. The interest rates, loan amount, margin, collateral requirements, guarantor requirements, fees and charges, eligibility and other features of business loans vary from lender to lender.
Therefore, applicants should visit online financial marketplaces like Paisabazaar.com to compare the interest rates, loan amount and other features offered by various lenders and opt for the lender that best suits their eligibility.
Business Loan Fees and Charges
Business loan lenders usually charge processing fees, prepayment charges, commitment charges, inspection charges, account service charges, penal interest and documentation charges from their business loan borrowers.
However, the fees and charges levied on business loans vary widely across lenders. Below-mentioned is an overall range of a few charges levied by the lenders on business loans.
| Particulars | Charges |
| Processing Fees | Up to 6% of the loan amount |
| Prepayment Charges | Up to 5% of the outstanding principal |
| Penal Interest | 2%-6% on the outstanding loan amount |
Business Loan – Features and Benefits
Below-mentioned are the features of business loans offered by various lenders:
- Most banks and NBFCs offer both secured and unsecured business loans
- Business Loan interest rates vary across the lenders and are offered on the basis of credit profile of the applicant, nature of business, type of business loan offered and nature of collateral/security
- Existing business loan borrowers of many banks and NBFCs can avail top-up loans over and above their existing business loans.
- Many lenders also offer overdraft facilities to their existing business loan borrowers.
- Existing as well as new customers of some lenders can apply for pre-approved business loans with instant loan disbursal and minimal documentation.
- Many lenders offer concessional interest rates to women borrowers.
- Applicants can also apply for business loans through online mode with quick approval, minimal documentation and swift loan disbursal
Eligibility Criteria for Business Loan
Lenders usually set their business loan eligibility criteria based on the following factors:
- Age: 21 years at the time of loan application and 65 years at the time of loan maturity (may vary across lenders)
- Minimum Business Vintage: 3 years (may be 5 years for some lenders)
- Minimum Business Turnover: Rs 90,000 to more than Rs 250 crore
- Credit Score: 750 or above (some lenders may offer business loans to applicants having lower credit scores)
- Minimum Income: Rs 1 lakh p.a.
- Eligible Entities: MSMEs, Proprietors, Limited Liability Partnership firms, Private Limited Companies, Public Limited Companies, self-employed individuals, self-employed professionals (doctors, CA, CS, architect, etc.) individual corporations, etc.
Documents Required for Business Loan
Applicants usually require the following documents for processing business loan applications.
- ID Proof: Voter ID, Driving License, Aadhar Card, Passport
- PAN Card for partnership firms, individuals and companies
- Address Proof: Telephone/electricity bill, Voter ID, Passport, Bank Statement, Driving License, registered lease deed or sale agreement, NREGA Card
- Age Proof: Birth certificate, PAN card, Aadhar card, Passport, etc.
- Ownership proof of residence or office
- Business continuity proof
- Copy of company’s PAN card
- Business registration proof
- Passport size photographs
- Latest GST returns
- Bank statement for last 6 months
- Latest ITR along with income computation, B/S, P&L account for last 2 years certified by a CA
- Sole proprietor declaration or certificate
- Partnership deed copy
- Certified copy of MOA, AOA and Board Resolution
Types of Business Loans
Lenders usually offer the following types of business loans:
Unsecured Term Loans
Lenders offer Unsecured Term Loans to MSMEs to meet their business requirements, such as expansion of operations, technology upgradation and meeting the cash flow requirements, without any collateral/security
Secured Term Loans
Secured Term Loans are offered against collateral like mortgage of immovable property, existing business assets of the applicant, financial securities, etc.
Unsecured Overdraft Business Loan
Unsecured Overdraft Business Loan is a collateral-free credit line facility wherein the applicant can withdraw money from their current business accounts within a predetermined limit, even with a zero balance.
Secured Overdraft Business Loan
Lenders offer Secured Overdraft Business Loans to their existing customers maintaining their current/savings account with the lender to finance their business operations and cash flows. The credit line facility is offered against residential/commercial/industrial property, financial securities like LIC Policies, KVP/NSC, Fixed Deposits, Mutual Funds, etc.
Professional Business Loan
Professional Business Loans are offered to self-employed professionals, such as doctors/medical practitioners, architects, CA and CS. Self-employed professionals can avail this loan facility to finance their business and working capital requirements including business expansion, purchase or construction of office premises, purchase of machinery, furniture, fixtures, equipment, purchase of medicine stocks, etc.
Bill Discounting
Bill Discounting allows the businesses to receive early payments against their outstanding invoices. The borrower presents the bill drawn on his customer to the lender, which pays him immediately after deducting a certain amount as discount or commission. The lender then collects the payment in full from the borrower’s customer on the bill’s due date. In case of any delay, the borrower or the customer has to pay a predetermined interest to the bank or NBFC.
Machinery Finance
Machinery Finance is a credit facility that allows the applicants to purchase machinery and equipment for business purposes.
Purchase Financing:
Lenders offer Purchase Finance to manufacturers, traders and service providers to pay for the raw materials and trading goods purchased from the suppliers.
Working Capital Loans:
Lenders offer Working Capital Loans to finance the day-to-day requirements of business units, such as purchase of raw materials and payment of wages.
Letter of Credit
Letter of Credit (LC) is a payment guarantee issued by the lender that enables the businesses operating in international trade to minimize their credit risk.
Merchant Cash Advance/Point of Sales
This loan facility is offered to small and medium enterprises engaged in online sales or having Point of Sale machines wherein the repayment is made by direct deduction of the amount against their online sales or sales made through POS machines
Personal Loan v/s Business Loan – Which one best suits your needs?
Personal loan can be used for meeting both personal and business requirements, business loans can be used only for financing various business related activities like raising working capital, financing business expansion, etc. While personal loans are usually unsecured in nature, business loans can be both secured and unsecured in nature.
Personal loans are offered as term loans, where repayment is EMI-based, or as an overdraft facility. However, business loans are offered in the form of term loan facility, limit-based facilities like overdraft and cash credit accounts, bill discounting, non-fund based facilities like letter of credit and bank guarantee, etc.
Loan applicants planning to avail lesser loan amounts without collateral can apply for personal loans or unsecured business loans. Those having more complex requirements and/or greater repayment flexibility should opt for respective business loan schemes based on their requirements.
5 Things To Know Before Applying For a Business Loan
Applicants should know the following things before applying for a business loan:
- Interest Rate: Business Loan interest rates vary across the lenders. Applicants should check the interest rates offered by various lenders and opt for the one offering lowest interest rates to incur lower interest cost.
- Turnaround Time: Applicants should know the time taken by the bank or NBFC for the approval and disbursal of a business loan. Lenders disbursing the business loans in lesser time are usually preferred by the borrowers. The turnaround time would depend on the type of business loan scheme and the type of collateral pledged for.
- Credit Score/Rating: Applicants having a credit score of 700 and above usually have higher chances of availing business loans. Some lenders also offer business loans at lower interest rates to those having high credit score/rating.
- Processing Charges: Applicants should know the processing fees and other charges levied by the lender before applying for business loans.
- Collateral: Lenders usually offer business loans against collateral/security, such as hypothecation of stocks, book debts, mutual funds, immovable property, liquid security, commercial or construction equipment.
FAQs on Business Loan
How to Apply for a Business Loan?
Business loan applicants can apply for a business loan directly through the official website/app of banks and NBFCs or by visiting bank branches. Applicants can also visit online financial marketplaces like Paisabazaar to compare the interest rates and other features offered by various lenders.
What is the Interest Rate for a Business Loan?
Business Loan interest rates would vary widely depending on the lender, the scheme opted for, the type of collateral pledged for and the subsidy provided to the applicant, if eligible, from the various government agencies. While most lenders have not publicly disclosed the interest rates applicable on their various business loan schemes, the interest rates usually start from 9% p.a. onwards minus the subsidies, if available.
Read: Mudra Loan Interest Rates
Who is Eligible for a Business Loan?
MSMEs, Limited Liability Partnership Firms, Proprietors, self-employed professionals (CA, CS, doctors, architect), self-employed individuals, Private Limited Companies, Public Limited Companies, etc., are eligible for a business loan. However, the eligibility criteria would vary across lenders depending on the business loan schemes to be opted for.
What Documents are Required for a Business Loan?
The documents required for business loan vary from lender to lender. However, the common documents required by the lenders while applying for business loan include KYC documents (Aadhar card, PAN card, Voter ID, Driving License, Passport), address proof (utility bills, telephone bills, electricity bill, sales agreement, registered lease deed, NREGA card), proof of residence or office ownership, business continuity proof, business registration proof, latest ITR alongwith income computation, certificate or declaration of sole proprietor, copy of partnership deed, certified copy of AOA, MOA and board resolution, etc.
Which Bank is Best for Business Loan?
Business loan applicants usually consider the lenders offering the lowest interest rates for availing business loans as it would help them in saving the overall interest cost.
Apart from the business loan interest rates, applicants also consider various parameters, such as loan tenure, loan amount, margin, type and value of collaterals, charges, loan guarantee requirements, repayment period and the turnaround time for loan disbursal while looking for the best bank for business loans.
Instead of visiting the official websites of multiple lenders, applicants can make their search easier by visiting online financial marketplaces like Paisabazaar to compare the business loan interest rates and other features offered by various lenders.
What can Business Loan be Used for?
Business loans can be used for meeting the business requirements including working capital requirements like purchasing inventories/raw materials, salaries/wages, rent, etc. and capital expenditure requirements like purchasing machinery and equipment, acquisition of other fixed assets and for carrying out other activities for business expansion.
How to get a small Business Loan?
You can get a small business loan through the official website of banks and NBFCs or by visiting bank branches. You can also visit online financial marketplaces like Paisabazaar to compare the interest rates offered by various lenders.
What is Margin Money in Business Loan?
Margin money in a business loan refers to the amount that the borrower has to contribute from his own resources for financing goods or services through his business loan. The rest of the cost is financed through the loan proceeds.
For example, assume that a borrower seeks to finance an equipment purchase of Rs 10 lakh through a business loan and the lender asks for a margin money of 25%. In this case, the bank will provide a loan of Rs 7.5 lakh to purchase that equipment while the balance cost of that equipment, i.e. Rs 2.5 lakh has to be arranged by the borrower himself.
What is the Minimum Credit Score Required to Apply for a Business loan?
The minimum credit score or credit rating required for availing a business loan may vary widely across lenders. In case of credit scores, individual applicants having a credit score of 700 and above may have a higher chance of availing business loans, especially the unsecured ones.
What is an MSME Business loan?
MSME loan is a credit facility offered to Micro, Small and Medium Enterprises to meet the business related financial requirements, such as business expansion and working capital requirements.
Can I get a 2 crore business loan?
You can get a business loan of Rs 2 crore depending on the nature of business, business vintage, credit score of the applicant and the type of collateral pledged by the borrower.
What are the Pre-closure and Part-prepayment Charges in Business Loans?
For floating rate business loans, the lender does not levy any pre-closure or part-prepayment charges. The pre-closure charges for fixed rate business loans may vary from 0%-6% with a lock-in period of 12 months. The part-prepayment charges for fixed rate business loans may range up to 5%. Borrowers are not allowed to part-prepay their business loans within the first 6 months from the date of loan disbursement.
How to Choose the Ideal Repayment Tenure for Business Loans?
The optimum repayment for any business loan would depend on the expected future cash flows of the business and the repayment structure of that business loan.
Who is eligible for small business loan?
Self-employed individuals, self-employed professionals, partnership firms and MSMEs are eligible for availing small business loans.
Can a salaried person apply for a Business Loan?
Business Loans are usually not offered to salaried individuals. However, salaried individuals can avail loans having no end-usage restriction, like personal loans and loan against securities, to finance their businesses. Salaried individuals who are existing home loan borrowers can avail also top-up home loans, if eligible, to fulfil their business related financial requirements.
Are there any foreclosure charges for closure of business loan?
Lenders usually charge foreclosure charges on preclosure of business loans. However, as per RBI regulations, lenders are not allowed to charge any foreclosure charges on business loans offered on floating rates to individual borrowers.
What is the Impact of GST on Business Loans for New Businesses?
GST is not levied on the interest component of any loans. However, the GST is levied on the various fees and charges incurred during the pre- and post-disbursal phase of a business loan.
Can I get a business loan of Rs 50 Lakh?
The probability of getting a Rs 50 lakh business would depend on whether you match the eligibility conditions set by the lender. Some of the factors that lender may consider while approving a Rs 50 lakh business loan would include annual income, repayment capacity, existing debt, availability of collaterals (if required) and ability to provide margin (if required). .
What is the minimum loan amount one can borrow for business purposes?
The minimum loan amount of business loans can vary widely depending on the lenders and the schemes offered. However, the lenders decide the loan amount eligibility of their applicants depending on the nature of business, repayment capacity, type of collateral pledged, business vintage, margin and annual income of the applicant.
What are the eligibility requirements for a business loan?
Lenders usually require their individual loan applicants to be at least 21 years old at the time of loan application and 65 years old at the time of loan maturity, with his/her minimum business vintage of 3 years. Apart from these, lenders also set certain specific eligibility conditions related to the credit score/credit rating of the business, minimum margin contribution, collaterals (if required), annual turnover, approvals/registration/licenses/certification, nature of business, IT/GST returns, etc.
What are the business loan options in India?
The various types of business loan schemes offered in India include secured business loan, cash credit, unsecured business loan, working capital loan, term loan, overdraft, letter of credit, bank guarantee, bill/invoice discounting, machinery/equipment finance, special MSME schemes, etc. All PSU banks and private sector banks and most of the banks belonging to other scheduled bank categories offer these business loan schemes to the businesses with varying eligibility conditions.
What is the difference between a secured and unsecured business loan?
The major difference between a secured business loan and an unsecured business loan is that a secured business loan is backed by a collateral whereas no collateral is required for availing unsecured business loan.
How does a business loan differ from a personal loan?
Lenders offer personal loans to individuals to finance their personal as well as business requirements, except for speculative or illegal purposes. Business loans can only be availed for meeting various business-related requirements such as capital expenditure funding, purchasing raw material/stocks, raising working capital for financing day-to-day business operations, etc.