What Loans Are Available for Small Businesses
|
If you run a small business in India, access to the right finance can decide how fast you grow. One of the most common questions we hear is what loans are available for small businesses and which option suits a specific stage of growth. In 2026, India’s MSME lending ecosystem has expanded rapidly, with banks, NBFCs, fintech lenders, and government-backed schemes offering tailored credit solutions. From working capital needs to machinery purchase, expansion, or even stabilising cash flows, there is a loan designed for almost every requirement. At Saarathi.ai, we have observed that many entrepreneurs miss out on better offers simply because they are unaware of all available loan types or compare only one lender. This guide explains all major small business loan options in India, their features, eligibility, and how to choose the right one confidently.
Why Small Businesses Need Different Loan Types
Small businesses are not one-size-fits-all. A kirana store, a manufacturing unit, a digital agency, and a restaurant have very different funding needs. Lenders now design products based on usage, risk profile, and cash flow patterns. According to guidelines from Reserve Bank of India, responsible lending focuses on matching loan purpose with repayment capacity. Choosing the right loan type reduces EMI stress and improves approval chances.
Types of Loans Available for Small Businesses in India
Business Term Loans
Business term loans are the most common funding option for small businesses. These are lump-sum loans repaid over a fixed tenure, usually 1 to 5 years.
Best for: Business expansion, setting up a new branch, purchasing equipment, long-term investments.
Loan amount: Rs. 2 lakh to Rs. 5 crore
Interest rates: Typically 9 percent to 22 percent per annum
Repayment: Monthly EMIs
At Saarathi.ai, we often see MSMEs choosing term loans when they want predictable EMIs and structured repayment.
Working Capital Loans
A working capital loan helps businesses manage day-to-day operational expenses like inventory purchase, salaries, rent, and utility bills.
Best for: Cash flow gaps, seasonal demand, daily operations
Types: Cash credit, overdraft, short-term loans
Tenure: 6 months to 3 years
These loans are ideal if your sales cycle is uneven but your business fundamentals are strong.
MSME Loans Under Government Schemes
The Government of India actively supports small businesses through credit-linked schemes.
Popular schemes include:
• MUDRA loans for micro enterprises
• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
• Stand-Up India for women and SC/ST entrepreneurs
Benefits: Lower collateral requirements, competitive interest rates, higher approval confidence.
These schemes are regulated under policies monitored by the Reserve Bank of India.
Loan Against Property for Business
A loan against property (LAP) allows business owners to use residential or commercial property as collateral to secure funds.
Best for: Large funding needs, business expansion, debt consolidation
Loan amount: Up to 60 percent of property value
Interest rates: Lower than unsecured business loans
Tenure: Up to 15 years
This option suits established businesses looking for lower EMIs and higher loan amounts.
Unsecured Business Loans
Unsecured business loans do not require collateral and are approved primarily based on credit score, income, and business stability.
Best for: Quick funding needs, startups, service-based businesses
Loan amount: Rs. 50,000 to Rs. 75 lakh
Interest rates: Higher than secured loans
Approval time: As fast as 24 to 72 hours
Through Saarathi.ai, many small business owners access unsecured loans with minimal paperwork and AI-based eligibility checks.
Equipment and Machinery Loans
If your business requires heavy machinery or specialised equipment, machinery loans are designed specifically for this purpose.
Best for: Manufacturing units, healthcare clinics, logistics businesses
Loan coverage: Up to 90 percent of equipment cost
Tenure: 3 to 7 years
The asset itself often serves as partial collateral, reducing interest costs.
Invoice Financing and Bill Discounting
Invoice financing allows businesses to borrow against unpaid invoices.
Best for: B2B businesses with delayed payments
Key benefit: Improves cash flow without waiting for client payments
Repayment: Once invoice is settled
This is especially useful for SMEs working with large corporates or government clients.
Startup and New Business Loans
New businesses with limited financial history can still access funding through startup-focused loan products.
Eligibility factors: Business plan, promoter profile, projected cash flows
Funding sources: NBFCs, fintech lenders, government-backed initiatives
At Saarathi.ai, we guide early-stage entrepreneurs toward lenders that accept alternative data instead of only past profits.
Eligibility Criteria for Small Business Loans
While criteria vary across lenders, common requirements include:
• Business vintage of 1 to 3 years
• Stable monthly or annual turnover
• Good credit score (usually 650 or above)
• Valid business registration documents
• Bank statements and ITR filings
Using the Saarathi AI expert, borrowers can check eligibility instantly across multiple lenders without affecting their credit score.
Documents Required for Small Business Loans
Typical documents include:
• PAN and Aadhaar of business owner
• Business registration proof
• Bank statements for last 6 to 12 months
• Income tax returns
• GST returns, if applicable
Our experience at Saarathi.ai shows that complete and accurate documentation can speed up approvals significantly.
How to Choose the Right Small Business Loan
Before applying, ask these questions:
• What is the exact purpose of the loan?
• How much funding do I really need?
• Can my cash flow comfortably support EMIs?
• Is collateral available or preferable?
Comparing multiple offers instead of relying on one bank can save substantial interest costs over time.
How Saarathi.ai Simplifies Small Business Loans
Saarathi.ai is built to remove confusion from borrowing. With access to 110 plus banks and NBFCs, our platform uses AI-driven recommendations to match businesses with the most suitable loan products.
Key advantages include:
• Paperless application journey
• AI-based lender matching
• Saarathi Bazaar dashboard to track offers and approvals
• Dedicated guidance through Saarathi AI expert
• Complete transparency with no hidden charges
Instead of visiting multiple lenders, business owners can compare, apply, and track loans in one place.
Interest Rates and Trends in 2026
In 2026, digital lending and improved risk assessment have led to more competitive pricing. Reports from leading financial publications indicate that MSME loan interest rates remain closely linked to repo rate movements and borrower credit quality. Businesses with strong cash flows and digital footprints often receive preferential rates.
FAQs on Small Business Loans
What is the best loan for a small business in India?
The best loan depends on your need. Term loans suit expansion, while working capital loans help manage daily expenses.
Can a new business get a loan without income proof?
Yes, some lenders consider business plans, promoter profiles, and alternative data instead of traditional income proof.
Is collateral mandatory for small business loans?
No. Many unsecured business loans do not require collateral, though secured loans offer lower interest rates.
How long does approval take for a business loan?
Digital platforms can approve loans within 24 to 72 hours if documents are complete.
Does checking loan eligibility affect credit score?
Soft eligibility checks through platforms like Saarathi.ai do not impact your credit score.
Conclusion
Understanding what loans are available for small businesses helps entrepreneurs make smarter financial decisions. From term loans and working capital to government-backed MSME schemes and unsecured credit, India’s lending ecosystem in 2026 offers diverse options. The key is choosing a loan aligned with your business goals and repayment capacity. At Saarathi.ai, we help small business owners compare, choose, and apply for the right loan with speed, transparency, and confidence. Discover personalised small business loan options on Saarathi.ai today and take the next step in your growth journey.
