A business loan is a financial product provided by banks and NBFCs to support business growth, operations, and expansion. Unlike personal loans, these are evaluated based on business performance, cash flow, creditworthiness, and project viability.
Require collateral such as real estate or machinery. They offer lower interest rates, higher loan amounts, and longer tenures due to reduced lender risk.
No collateral required. Based on creditworthiness and turnover. Higher interest rates but faster processing and minimal documentation.
Provide a fixed loan amount with predefined repayment tenure. Used for working capital (short-term) or expansion (long-term).
These loans support day-to-day operational expenses including salary payments, inventory management, and supplier payments during cash flow gaps.
Specialized loans to purchase machinery where the equipment itself acts as collateral, helping manage cash flow while expanding operations.
To qualify, borrowers must meet specific requirements regarding age, vintage, and financial health.
| Criteria | Requirement |
|---|---|
| Age | 21-24 years at application; Max 65-80 years at maturity. |
| Business Vintage | Minimum 2-5 years operational history. Startups < 2 years typically face rejection. |
| Credit Score (CIBIL) | 685-700+ preferred. Scores >750 get preferential rates. Below 650 often rejected. |
| Turnover | Min Rs. 3 Lakh to Rs. 40 Lakh annually. Some lenders require Rs. 4-5 Lakh monthly sales. |
| Business Structure | Sole proprietorships, Partnership firms (2+ years), Pvt Ltd, and MSMEs. |
| Cash Flow | Must demonstrate positive cash generation and sustainable revenue patterns. |
| Debt-to-Income Ratio | Keep your debt utilization ratio at or below 30% of your credit limit to avoid rejection, as lenders consider your total existing debt. |
Rates vary based on creditworthiness, loan amount, and collateral. Processing fees typically range from 1-4%.
| Bank | Interest Rate Range |
|---|---|
| State Bank of India (SBI) | 9.10% - 11.55% |
| Bank of Baroda | 7.25% - 13.50% |
| Canara Bank | 9.50% - 11.55% |
| Union Bank of India | 9.55% - 12.10% |
| Bank of India | 10.20% - 12.95% |
| IDBI Bank | 8.05% - 13.45% |
| Punjab National Bank | 15.00% - 25.00% |
| Bank | Interest Rate Range |
|---|---|
| HDFC Bank | 10.75% - 22.50% |
| Kotak Mahindra Bank | 9.50% - 30.50% |
| ICICI Bank | 16.00% - 22.00% |
| Axis Bank | 15.00% - 19.25% |
| YES Bank | 15.99% - 24.25% |
| IndusInd Bank | 15.99% |
| Federal Bank | 11.10% - 17.95% |
| CITI Bank | 12.00% - 18.00% |
| DCB Bank | 9.95% - 19.50% |
| Institution | Interest Rate Range |
|---|---|
| Tata Capital | 12.00% - 26.00% |
| Bajaj Finserv | 14.00% - 25.00% |
| Aditya Birla Capital | 20.00% - 26.00% |
| Muthoot Fincorp | 9.00% - 12.00% |
| Poonawalla Fincorp | 9.00% - 15.00% |
| Shriram Finance | 12.00% - 42.00% |
| Indifi Capital | 18.00% onwards |
| LendingKart | 13.50% onwards |
| IDFC FIRST Bank | 12.99% onwards |
| Flexiloans | 12.00% onwards |
| UGRO Capital | 9.00% - 36.00% |
| Muthoot Finance | 15.00% - 36.00% |
| Asset Type | Max LTV Ratio |
|---|---|
| Commercial Property | 60% - 75% |
| Residential Property | 50% - 70% |
| Industrial/Warehouse | 60% - 70% |
| Hospitality/Specialized Properties | 55% - 65% |
| Gold Loans | Up to 75% |
| Loans Against Shares | Up to 50% |
| Machinery & Equipment | 40% - 60% |
| Inventory | 40% - 50% |
Measures ability to pay debt from operating income.
Formula: Net Operating Income / Total Debt Service.
This ratio measures capital structure, comparing total liabilities to shareholder equity.
Formula: Total Liabilities / Total Shareholders’ Equity.
This ratio calculates the percentage of assets financed through debt.
Formula: (Total Liabilities / Total Assets) × 100
This profitability metric indicates the percentage of revenue retained as profit.
Formula: (Net Profit / Revenue) × 100
The current ratio measures short-term liquidity and ability to meet current obligations.
Formula: Current Assets / Current Liabilities
This metric assesses earnings quality and cash generation capability.
Formula: Operating Cash Flow / Net Income
This ratio measures the company's ability to absorb unexpected losses.
Formula: (Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets
Choose a loan tenure that mirrors your cash flow—longer for seasonal stability, shorter for working capital, and extended for major expansion—to ease repayment pressure.
Combine real estate and equipment to meet requirements while minimizing risk.
For projects, release funds based on milestones to reduce interest burden.
Lower initial EMIs with a large final payment; ideal for startups expecting growth.
Negotiate a 6-12 month moratorium on principal repayment during project setup.
Arrange debt subordination to prioritize a primary loan over others, securing its approval without closing existing credit lines.
Pairing collateral with personal, director, or third-party guarantees strengthens loan security and can lead to more favorable interest rates.
Negotiate variable EMI structures where repayments adjust with business cash flow (higher during peak seasons, lower during lean periods).
Securing a business loan requires preparation. Understanding DSCR, LTV, and collateral requirements allows you to approach lenders with confidence. Maintaining excellent credit scores and accurate financial records is key to accessing capital for growth.
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