A business loan can be obtained from a bank or NBFC in order for a business to raise sufficient capital and establish itself or attain further growth. The interest rate on business loans is usually based on the amount borrowed and the repayment period sought.

Small and medium firms for start-ups in India continue to rely on the banking sector for financial aid as far as loans are concerned.

Your small business can grow with the support of a business loan. You can use the business loan amount to invest in business equipment, expand your infrastructure or operations, hire more staff, manage day-to-day cash flows, etc. Business loans might be a great way to keep your firm running smoothly and utilising the market capitalisation opportunities that come your way. 

What is a business loan?

A business loan is a sum of money lent to a business by a financial institution for business purposes such as additional investment, expansion, etc. This type of finance helps businesses meet urgent needs of expansion and growth.

Eligibility for a business loan

The below-mentioned points will determine if a business is eligible for a loan:

  1. Age of your business

The time that the company has been operational is one of the main factors considered by banks and lenders. Most online small-business loans and business loans offered by banks require a minimum of two years of business experience.

  1. Credit score

Most major credit bureaus in India provide free annual credit reports to businesses. This is one of the key criteria for business loan eligibility as it indicates to the bank or lender whether the business can repay the loan on time.

  1. Income tax filing

To apply for a business loan, the borrower should have filed ITR returns for the last couple of years. Along with other documentation like proof of business ownership, bank statements, you also have to submit the ITR forms. 

Which Type of Business Loan to Apply for?

Lenders or banks usually inquire about the reason for a business loan. Lenders normally require businesses to demonstrate sufficient cash flow to sustain loan repayment. Therefore, businesses that are in their nascent state may find it difficult to obtain financing.

Some new businesses may have to rely on alternative sources of finance such as business credit cards and personal loans while in the initial stages.

Businesses can consider a line of credit in such situations as it is a flexible financing solution that allows access to funds as required. This way, a business can cover obligations such as payroll expenses or unexpected costs arising due to repairs, maintenance, etc when needed.

Many lenders also offer products that are tailored to the requirements of a developing or new business.

Additional Reading: 5 Best Business Loans in India for women entrepreneurs 

How to Improve Chances of Getting a Business Loan?

Business loans require the businesses to fulfil eligibility criteria. If a borrower does not fulfil the bank's eligibility criteria, the bank may reject the loan application. Here are few important tips that can help in improving the chances of easily getting approval for a business loan application:

  1. Improve credit score – If a business or business owner has a low credit score, the first step is to identify the factors that have caused it. Credit scores can be negatively affected due to non-payment of credit card bills or delay in outstanding loan EMI payments. Defaulting or late payments can result in a poor credit score. It is therefore important to maintain a good repayment track record by making all payments on time. It is also important to ensure that there is an adequate balance in the business’s bank account for successful ECS transactions.

  2. Avoid multiple credit applications – Businesses that apply for loans with multiple banks often face higher chances of loan rejection as each credit inquiry gets registered in the credit report. Many times, businesses are unaware that any loan rejection by a bank reduces the chances of loan approval in the future. Banks become cautious while lending to such applicants who have faced loan rejection in the past. 

  3. Choose the right lender – It is important to conduct proper research on all banks that offer the best business loans. Businesses must choose a bank offering low interest rates along with other attractive loan terms. Applicants must calculate loan eligibility using an online Eligibility Calculator to know the chances of loan approval and the business’s ability to service loan repayments. 

  4. Business existence – Banks and lenders prefer to give loans to businesses that have been in existence for at least 3 years. New businesses, start-ups or loss-making units may have lower chances of getting an unsecured business loan easily. Therefore, they may have to explore secured business loan options.

  5. Check repayment capacity – Before applying for a business loan, a business establishment must determine the loan amount that is easily repayable in the future. A loan amount higher than the business’s eligibility can make the lender doubt the repayment ability and may lead to loan application rejection. 

  6. Maintain financial records – A business entity must ensure GST registration and appropriate maintenance of audited financial records. This set of documents are often referred to by lending institutions or banks while calculating loan eligibility.

Suggested Reading: How to create a compelling business roadmap?


Businesses must regularly check credit scores, especially when a borrowing need arises. It is advisable to check the business entity and business owner’s credit score report regularly and make timely corrections to the report before making a loan application.

FAQs of Business Loan

  1. How much business loan can I get in India?

SMEs and start-ups can normally avail business loans of up to Rs. 2 crores, depending on eligibility criteria, lender’s terms, credit history, and other factors. 

  1. Can I get a loan to start a business in India?

Yes, many government loan offerings can be availed by start-up businesses in India. One of the preferred options includes Mudra Loan Scheme that comes with many benefits and lowers interest rates.

  1. Which banks give business loans?

There are many lenders and banks offering business loans in India. Some of these are SBI, HDFC, ICICI, RBL bank, etc.

  1. Who is eligible for a Mudra loan?

Any owner or entrepreneur who runs a small business establishment is eligible to apply for a Mudra loan. 

  1. How can a business owner check a credit score?

A business owner can easily check their business credit health report on CreditMantri. Alternatively, the score can also be accessed along with a detailed credit report on the credit bureau’s website.