Business Loan in India: Interest Rates, Eligibility & How to Choose the Right Lender
A complete, unbiased comparison of business loan interest rates, eligibility criteria and documentation across India's top banks and NBFCs — plus where government-backed schemes like Mudra, PMEGP and CGTMSE can lower your cost of capital.
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What Is a Business Loan?
A business loan is credit extended by a bank, NBFC or government-backed scheme to a proprietorship, partnership, LLP or company for working capital, expansion, equipment purchase or business expenses. Loans range from ₹50,000 under Mudra's Shishu category to several crores for secured term loans, with interest rates in 2026 starting around 8.15% p.a. for the strongest credit profiles and running up to 22–24% p.a. for higher-risk unsecured loans.
Unlike personal loans, business loans are underwritten against your business's turnover, banking history, GST filings and credit profile (both personal CIBIL and business credit score, where applicable). Most are offered as term loans, working capital/overdraft facilities, or line-of-credit products, and can be secured (against property, machinery or inventory) or unsecured (based purely on cash flow and credit history).
Types of Business Loans in India
Term Loan
A lump sum disbursed upfront and repaid in fixed EMIs over 1–7 years. Used for expansion, asset purchase or one-time capital needs.
Working Capital Loan / Overdraft
Revolving credit against current assets or a sanctioned limit, used to fund day-to-day operations, inventory and receivables gaps.
Unsecured Business Loan
No collateral required; approval is based on turnover, bank statements and credit score. Faster disbursal, but higher interest (11%–24% p.a.).
MSME / Mudra Loan
Government-backed, collateral-free loans up to ₹20 lakh under PMMY, or up to ₹5 crore under CGTMSE-covered MSME schemes.
Machinery / Equipment Loan
Loan against the asset being purchased, often with the equipment itself serving as collateral, keeping rates lower.
Invoice / Bill Discounting
Short-term financing against unpaid invoices, useful for businesses with long receivable cycles (B2B, exports).
Business Loan Interest Rates 2026 — Compared
Business loan interest rates depend on your credit score, annual turnover, banking relationship, loan amount and tenure. Public sector banks generally price lower but ask for more documentation; NBFCs and fintech lenders disburse faster at a rate premium.
| Lender | Interest Rate (p.a.) | Max Loan Amount | Processing Fee |
|---|---|---|---|
| State Bank of India (SBI) | 8.50% – 16% | Up to ₹5 crore+ | Up to 1% |
| Punjab National Bank (PNB) | 10.30% – 16% | Up to ₹5 crore | Up to 1% |
| HDFC Bank | 10.75% – 22.50% | Up to ₹75 lakh (unsecured) | Up to 2% |
| ICICI Bank | ~11% – 18% | Up to ₹2 crore | Up to 2% |
| Axis Bank | ~11% – 19% | Up to ₹75 lakh | Up to 2% |
| Kotak Mahindra Bank | ~11% – 20% | Up to ₹75 lakh | Up to 2.5% |
| Top NBFCs / Fintechs | 12% – 24% | Up to ₹1 crore | Up to 3% |
Indicative rates as of August 2026, collected from lender disclosures and comparison platforms. Actual rates depend on individual credit assessment — always confirm with the lender before applying. Rates change with RBI repo rate movements.
The cheapest business loans in India in 2026 are from public sector banks like SBI (from 8.50% p.a.) and PNB (from 10.30% p.a.), especially for MSMEs with Udyam registration and a strong repayment track record. Private banks and NBFCs charge more (11%–24% p.a.) but process applications faster and need less paperwork.
Business Loan Eligibility Criteria
- Business vintage: Most lenders require 1–3 years of operational history; some fintechs accept 6 months for GST-registered businesses.
- Annual turnover: Minimum turnover thresholds typically start around ₹10 lakh–₹40 lakh depending on lender and loan size.
- Credit score: A CIBIL score of 700+ significantly improves approval odds and pricing; sub-650 scores usually mean higher rates or rejection at banks.
- Business type: Sole proprietorships, partnerships, LLPs, private limited companies and MSMEs registered under Udyam are all eligible, though documentation varies.
- Age: Applicants are generally required to be 21–65 years old at loan maturity.
- Profitability: Lenders check ITR filings and bank statements for consistent profitability or positive cash flow over the last 1–2 years.
Documents Required for a Business Loan
Identity & Address Proof
PAN card, Aadhaar, passport or voter ID of the proprietor/partners/directors.
Business Proof
Udyam/MSME registration, GST certificate, shop & establishment license, partnership deed or certificate of incorporation.
Financial Documents
Last 1–3 years' ITR with computation, audited financials/balance sheet, and 6–12 months' bank statements.
Collateral Papers (if secured)
Property documents, machinery invoices or fixed deposit receipts pledged as security, where applicable.
Government-Backed MSME Loan Schemes
Mudra Loan (PMMY) — Up to ₹20 Lakh, Collateral-Free
The Pradhan Mantri Mudra Yojana funds non-corporate, non-farm micro and small enterprises through four tiers:
| Category | Loan Range | Best Suited For |
|---|---|---|
| Shishu | Up to ₹50,000 | First-time entrepreneurs, minimal documentation |
| Kishor | ₹50,001 – ₹5,00,000 | Businesses with basic financials, early growth stage |
| Tarun | ₹5,00,001 – ₹10,00,000 | Established micro-units with a full project report |
| Tarun Plus | ₹10,00,001 – ₹20,00,000 | Repeat borrowers with a clean Tarun repayment history |
Mudra loans are disbursed by banks, RRBs, small finance banks and NBFCs (Mudra itself is a refinancing body, not a direct lender) and often come with a RuPay-based Mudra Card for flexible working-capital withdrawal. Tarun Plus loans up to ₹20 lakh are covered under the Credit Guarantee Fund for Micro Units (CGFMU), reducing the lender's risk and, in turn, improving access for the borrower.
How to Apply for a Business Loan — Step by Step
- Assess your funding need and repayment capacity. Decide whether you need working capital, a term loan or equipment financing, and calculate the EMI your cash flow can support.
- Check and improve your credit score. A CIBIL score above 700 unlocks meaningfully better pricing — clear any overdue dues before applying.
- Get Udyam/MSME registration done if you haven't already; it's free, takes minutes online, and is required for most scheme-linked loans and lower processing fees.
- Shortlist 2–3 lenders comparing rate, processing fee, prepayment charges and turnaround time — not rate alone.
- Gather documents — ITRs, bank statements, GST returns and business registration proofs — before you start the application to avoid delays.
- Apply online or via a branch/relationship manager, and track the application; most banks disburse in 1–3 weeks, NBFCs often in under a week.
Bank vs NBFC: Which Should You Choose?
Choose a bank if you want the lowest interest rate and can provide full documentation with some processing time to spare. Choose an NBFC or fintech lender if you need funds quickly, have limited operating history, or your documentation doesn't fully meet bank criteria — expect to pay a rate premium of roughly 2–8 percentage points for that speed and flexibility.
Public sector banks like SBI and PNB tend to offer the lowest starting rates and are well suited to MSMEs with Udyam registration and clean repayment records. Private banks (HDFC, ICICI, Axis, Kotak) sit in the middle — faster digital processing than PSU banks, but higher rates. NBFCs and fintech lenders are the fastest to disburse, sometimes within days, but charge the most and are best used for short-term or bridge funding rather than long-tenure capital.
Work Out Your Business Loan EMI Before You Apply
Use Arthzo's EMI calculator to compare monthly outgo across lenders, tenures and interest rates — with a full amortisation schedule and downloadable PDF.
Open EMI Calculator →Frequently Asked Questions
Most banks prefer a CIBIL score of 700 or above for competitive rates. Some NBFCs and fintech lenders accept scores as low as 650, though at a higher interest rate and stricter terms on loan amount.
It's difficult but not impossible. Some fintech lenders and NBFCs offer loans based on GST returns and bank statement cash flow for businesses as young as 6–12 months, though loan amounts are typically smaller and rates higher than for established businesses with 2–3 years of ITR history.
No. Unsecured business loans and Mudra loans up to ₹20 lakh are collateral-free. Larger term loans, especially above ₹75 lakh–₹1 crore, more commonly require property, machinery or fixed deposits as security.
Most lenders sanction loan amounts of roughly 1–2 times your average monthly turnover for working capital loans, though this varies significantly by lender, sector and credit profile. It's best treated as a starting benchmark, not a guarantee.
Mudra loans are a government-backed refinancing scheme capped at ₹20 lakh, aimed specifically at micro and small non-farm enterprises, and are usually collateral-free. Regular business loans from banks and NBFCs have no such cap, can be secured or unsecured, and are priced purely on the lender's own credit assessment.
Public sector banks typically take 1–3 weeks given the documentation involved. Private banks are somewhat faster, and NBFCs or fintech lenders can disburse within 24 hours to 7 days for smaller unsecured amounts with digital documentation.
This article is for general informational purposes and does not constitute financial advice. Interest rates, eligibility criteria and loan terms are indicative, subject to change, and vary by lender and individual credit profile. Please verify current rates and terms directly with the lender before applying. Arthzo is not a lender and does not facilitate loan disbursal.