Business Loan

What is the Best Source for Small Business Loans?


Over the last few years, the ease of doing business in India has significantly increased. Small business owners now have various avenues for securing a business loan. Small business loans are easily available from banks, NBFCs (non-banking financial companies), and the government under various schemes. Several new programmes have been launched by the government to support small business owners in scaling their operations. Apart from traditional sources like bank loans, one can now reach out to relatively newer finance products like crowdfunding or other non-banking lending institutions.

Read on to find out the best sources for a business loan.

Why Business Loans?

Small-scale businesses do not necessarily generate a great deal of revenue to earn high profit margins. This makes it difficult for them to plug money back into the operations and make the business sustainable. A business loan can be extremely helpful when starting a new business or at any other stage of the business lifecycle.

Now, to secure a business loan, one must consider the merits and demerits of the different types of loans. The person also needs to estimate the approximate size of the loan that will be determined through a budget forecast. In India, the main source of business capital is banks. Other important funding entities are NBFCs, angel investors, and venture capitalists.

As a business owner, you would mainly need two types of business loans: equipment and machinery loans and working capital loans. Product-based industries rely more on the first type, while service-based industries need more working capital.

The best small business loans in India

1. PSB Loans

The government of India has relaxed the process of a business loan application, and one can now apply for one in less than an hour! If someone is looking to expand the scale of their business operations, they can apply for a PSB (private and public sector banks) loan ranging from INR 1 lakh to INR 5 crore. The loan will be sanctioned immediately if it meets all the criteria.

2. Mudra Loans

Mudra, or Micro Units Development and Refinance Agency, was formed as a nodal agency to provide small business loans. Businesses that are not covered under secured loans from banks can apply for this loan.

3. NSIC Loans

NSIC, or the National Small Industries Corporation, allows small businesses to apply for financial benefits in the form of subsidies. The money from these subsidies could be used to buy materials or pay for marketing costs.

4. CLSS Loans

Credit Linked Subsidy Loan, or CLSS, is a government scheme designed to improve the quality of production by small businesses. This allows a small business owner to stay competitive in the market. The CLSS subsidy can be availed as a business loan to upgrade the manufacturing setup.

5. SIDBI Loans

The Small Industries Development Bank of India, or SIDBI, has collaborated with banks, accredited consultants, and rating agencies to give out small business loans. This is mainly targeted toward the service-based and manufacturing industries. Under this scheme, one can apply for funding in the form of bank loans.

6. MSME Loans

When it comes to the micro, small, and medium enterprise sectors, traditional bank loans are the best option. A person can file a business loan application with any private or nationalised bank in India at affordable interest rates. They can get loans for working capital, term loans, etc.

7. Business Loans from Private Banks

Depending on the type of business loan, one can also seek support from private banks in India. Because there is a lot of competition, private banks offer business loans with low interest rates, easy documentation, flexible repayment terms, and quick disbursement times.

Small business loan eligibility criteria

As a small-scale business owner, funding is always a concern. But with easily available business loans, many of the monetary challenges can be mitigated. If a person fits the below-listed criteria, business loan approval should be easy.

  • Credit history: It is always a good idea to monitor credit reports and keep them up-to-date. This is the first thing lending institutions check while approving or rejecting a business loan request. 
  • Feasibility: While curating financial projections for a year, it is important to adhere to industry standards. If, for any reason, a person has not followed the industry standards, then the same must be outlined in the projection. At the time of the loan application, the person will have to give a detailed pro forma statement along with their plans. 
  • Business plan: For any lender to invest money in one’s business, they have to be sure that the business plan is financially viable. This includes the business model’s overall structure, estimates of capital, marketing costs, assets, and so on.

It is thus very clear that securing a business loan for a small business is very simple if the process is followed carefully. Given that there are so many avenues to secure a small business loan, like Piramal Finance, it is easy to make the business sustainable.