Step by Step Guide on How to Get a Small Business Loan

Every business requires funds for capital expansion and growth purposes which are generally derived from the profits of the company, however, small businesses do not have sufficient amounts of profits that can be invested or utilised in the diversification and expansion of the business. In such a scenario, one can opt for a small business loan that offers financial assistance to companies or enterprises to meet their capital requirement without any hassle.

Banks and other non-banking financial companies (NBFCs) offer small business loans up to ₹75 lakhs with a maximum tenure of 5 years by taking the business operations and other parameters into consideration.

Key Features and Benefits of Small Business Loan

Here are some of the key features and benefits of small business loans offered by various banks and financial institutions –

  • Flexi Loan Feature – Under the Flexi loan feature, borrowers can withdraw loan amounts as per their requirements from the loan account and interest is charged only on the withdrawn amount and not the total loan amount.
  • Government Schemes –  The Indian government has launched a variety of schemes to encourage the budding entrepreneurs of the country. One can apply for a small business loan in banks or financial institutions under government schemes to enjoy additional benefits.
  • Higher Loan Amounts – Small business loans offer financial assistance for up to ₹75 lakhs which majorly fulfils the capital requirements of micro and small enterprises.
  • Zero Collateral – Small business loans availed under government schemes from formalised banking channels do not require any security or collateral for approval.
  • Flexible Repayment Tenure – As per the financial goals and requirements, one can select the repayment tenure of their small business loan.

Types of Small Business Loans

There are various categories of small business loans, specifically curated to serve different purposes –

  • Working Capital Requirement – A working capital small business loan can be beneficial for businesses to manage their daily expenditures, short-term borrowings, etc. ensuring hassle-free business operation.
  • Purchase of Machinery or Asset – There is a separate loan category that funds the purchase or upgradation of machinery and assets contributing to the infrastructure development of the business. The loan amount can be utilised for servicing, repairing, etc. related to the machine or the asset. 
  • Start-ups – Small business loans have a special category in loans for start-ups for budding entrepreneurs to meet capital and operational fund requirements at reasonable interest rates.
  • Term Loans – Term loans are one of the most preferred loan options offered by many banks or financial institutions. Term loans can be secured and unsecured loans depending upon the applicant’s profile and business model.

Eligibility Criteria for Small Business Loan

Check out the eligibility criteria for small business loans mentioned-below 

  • You should be a native of India.
  • You should be between 25-65 years of age.
  • You should be a self-employed non-professional and not a self-employed professional.
  • The annual income of the business should be at least ₹1.5 Lakhs.
  • Any business unit is eligible for a small business loan including private limited companies, partnership firms etc.
  • You should hold at least three years of business experience and a minimum of five years in the industry.

Documents Required for Small Business Loan

Here is a list of documents for a business loan, that one must keep handy during the application procedure – 

  • Passport-size photographs
  • Identity Proof – Aadhar card, PAN card, etc.
  • Address Proof – Utility bills, passport, etc.
  • ITR of last two financial years along with consolidated balance sheet and Profit and loss statement.
  • Bank statements for the last six months
  • Copy of Memorandum of Association and Article of Association
  • A copy of the business model – Partnership deed, sole proprietorship declaration, etc.

** Note – The documentation procedure might require the submission of some additional documents as per the norms and policies of the lending institution.

How to Apply for a Small Business Loan

Follow the below-mentioned steps to apply for a small business loan  –

  • Visit the official portal of your preferred lending institution.
  • Under the ‘loans’ section, click on the type of loan you wish to apply for.
  • Fill in all the personal and business details, to begin with, the application procedure.
  • Enter the loan amount and tenure. 
  • Submit the form after attaching the mandatory documents with the form.
  • Once the loan application is submitted, the company executives will authenticate and verify the mentioned information.
  • Upon successful verification, the company executive will contact you for further discussion on the registered contact details.

Things to Keep in Mind 

Here is a list of Do’s and Don’ts that one must keep in mind about small business loans

  • Understand your fund requirement and repayment capacity before applying for a loan.
  • Compare the loan options, but do get lured by the financial institutions offering low-interest rates. Understand the terms and conditions and then make a decision. 
  • Banks and financial institutions charge around 2-3% administrative and processing charges on the loan amount from the applicant. Ensure that you discuss additional charges before the application procedure itself.
  • Avoid filling out multiple loan applications, as it reflects unprofessional behaviour and an unstable mindset.
  • Clarify and understand foreclosure criteria and then make a prepayment of the loan. 


  • Is the CIBIL score taken into consideration to get approval for small business loans?

Yes. The applicant should have at least have a CIBIL score of 750 or above to get hassle-free approval for a small business loan.

  • What is the maximum tenure for small business loans?

Small business loans have a maximum tenure of five years, where applicants can select repayment tenure as per their goals and capacity.

  • Can I get an unsecured small business loan without any security or collateral?

Yes. One can get an unsecured small business loan without any collateral or security as well.

  •  Can I cancel my small business loan application after the approval?

Yes. One can cancel their small business loan application after the approval but before the disbursal of loan approval.

  • Will I be charged a fixed interest rate or a floating interest rate on my small business loan?

Generally, banks or financial institutions charge a fixed interest rate on small business loans, however, one can check and confirm the norms and policies before the filling application.

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